The Telstra Corporation Ltd (ASX:TLS) share price has taken another leg down, falling 14 cents or 4.4 per cent to $3.06 after downgrading its profit guidance.
Only last week I warned that Telstra was operating in an increasingly competitive environment. When combined with a well-known $3 billion ‘earnings hole’ post peak NBN payments in FY19, it was clear Telstra’s FY22 earnings would be lower than today.
It’s even clearer today. And it means owning Telstra shares today is likely ‘dead money’ for the next few years.
For those rusted on shareholders who are hanging on for the Telstra fully franked dividend alone, enjoy it while it lasts.
Telstra confirmed this year’s dividend will be 22 cents per share.
Going forward, all bets are off. Telstra have committed to paying 70 to 90 per cent of its earnings as dividends. The problem is earnings are already under-pressure, and that’s before the ‘earnings hole’ kicks in.
Having likely held the shares all the way down to now, Telstra shareholders are likely reluctant to bail out now.
That’s been a costly mistake over the past 2 years. During that time, Telstra has cuts its dividend and its share price has fallen from $6.20 all the way down to $3.06, a fall of over 50 per cent.
For those long-suffering Telstra shareholders looking for an alternative, here are three ideas.
BHP Billiton Ltd (ASX:BHP)
Commodity prices are high, and likely staying relatively high, given synchronised global economic growth.
Unlike past cycles, characterised by takeover activity, sharply increased output and higher costs, the big miners are being admirably restrained, focusing on cash generation.
That is likely to lead to sharply higher dividends, boosted also by the falling Australian dollar. With the BHP share price trading at around $33.70, BHP shares are trading on a forecast fully franked dividend yield of around 4.6 per cent.
Macquarie Group Ltd (ASX:MQG)
Unlike the big four banks, Macquarie is growing its earnings and dividends. Funds management is a large and growing part of its business, with long growth prospects ahead.
In a steady economic environment, funds management is attractive because much of its revenue is recurring in nature.
With the Macquarie share price currently trading around $111.60, Macquarie shares are trading on a dividend yield of around 4.9 per cent, 45 per cent franked.
Cadence Capital (ASX:CDM)
One of a host of listed investment companies (LICs), Cadence Capital is a fund manager, investing in quoted stocks both here in Australia and overseas.
Run by Karl Siegling, Cadence has a history of out-performance. With one investment, you get instant diversification across a number of companies and a number of countries.
One obvious risk is Cadence’s big investment in Melbourne IT Limited (ASX:MLB), a 19 per cent position in the LIC. Nevertheless, the growth prospects for Melbourne IT look solid, and you have to believe Mr Siegling has done his homework on the company.
With the Cadence share price currently trading around $1.26, Cadence shares are trading on a fully franked dividend yield of around 6.3 per cent.
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