Why the Telstra Share Price Rose Today

What happened to the Telstra share price?

It’s been a rollercoaster ride for shareholders in Telstra [ASX:TLS] over the last 12 months. After trading as high as $5.86 in July, it only took two months before it fell through the $5 level, trading as low as $4.92 in September.

Mind you, for a stock that struggled to stay above $2.50 through 2010 and into the following year, the share price has gained around 250% over the last five years. If only for the heady days when it traded over $9, nearly two decades ago.

Why did Telstra do this?

Telstra was trading around current levels ($5.15) in April when news broke that it had sold the majority of its investment in Autohome, a Chinese carsale site. For an investment that cost them less than $80 million, the US$1.6 billion price tag saw the share price rocket.

Telstra is a stock that rarely attracts much excitement. But as investors piled in, speculation mounted about what Telstra would do with their excess funds. Talk of special dividends added even more buzz to a market obsessed by yield.

However, when the dividend was eventually declared, it was the same size as the earlier one in March. Instead of dolling out extra cash, Telstra decided to buy back $1.5 billion of its shares. Down the share price went.

What now for Telstra?

It’s hard to see anything on the horizon that will propel Telstra’s share price beyond its current trading range. What the sale of Autohome did show, however, is that other assets might be put on the chopping block.

A $3 billion capex commitment over the coming three years will use up a chunk of Telstra’s cash. Of course, investors would rather see that money in their pocket. While Telstra mightn’t run away to any massive gain, its 6.0% fully franked dividend will likely retain the interest of income hungry investors.

Matt Hibbard,
Money Morning

Money Morning Australia