Telstra shares are now 17 per cent higher from when we said they were “pretty close to a buy”

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After a slow start to Thursday trade, the Telstra (ASX:TLS) share price has steadily climbed higher throughout the day, now up almost 6 per cent to $3.06 as at 1:40pm.

This comes on the day Telstra reported a full year profit of $3.5 billion, down almost 9 per cent on the prior year. As previously flagged, Telstra declared a final dividend of 11 cents per share, bringing the Telstra full year fully franked dividend to 22 cents per share.

These results were in line with expectations, with Telstra CEO Andy Penn saying “While it is less than two months since we presented our new strategy, we are well into the execution phase, building on the momentum provided by our up to $3 billion strategic investment in networks for the future and digitising the company.”

Relief rally

With investors likely fearing further downgrades, the jump in the Telstra share price is likely more of a relief rally than anything about the Telstra story changing.

Looking ahead to FY19, at the mid-points Telstra is guiding for total income to be around 5 per lower at $27.5 billion, and EBITDA before restructuring to be around 10 per cent lower at $9.1 billion.

Make no mistake, although the Telstra share price is higher today, this is a company in decline, and one operating in an increasingly competitive environment.

Telstra shares are now up 17 per cent from its low

Back in late June, with Telstra shares trading at $2.66, here at The Capital Club we said they were pretty close to a buy, something we reiterated when Telstra shares ended that week trading at $2.62.

The thinking was pretty straight forward. If the company hit its FY19 targets, Telstra shares were cheap and the dividend yield very attractive.

Back then, I calculated a Telstra share price of $2.62 gave investors a 15 month income return of 11.8 per cent, or almost 17 per cent when grossed up for franking credits.

Telstra shares are now up 17 per cent from when we said they were pretty close to a buy.

Pretty good going for those who followed our advice.

A few weeks ago I said I wouldn’t be looking to hold Telstra shares much past $3.

How quickly things can change, because in the blink of an eye, that day is here.

Enjoy the gains, and look forward to the fully franked dividends. After all Telstra shareholders have been through, you deserve it. 

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au