Why the Telstra Share Price Sank This Week

TELSTRA

What happened to Telstra’s share price?

Shares in Telstra [ASX:TLS] sank more than 6.5% on Thursday, as the market reacted negatively to its half-year results. While that mightn’t be a big move for a small-cap, it’s a big hit for a company of Telstra’s size. Enough to wipe $3.7 billion off its market value.

Why did Telstra shares sink on Thursday?

The market wasn’t expecting anything big from Telstra; more of a ‘business as usual’ type of result. What the market wasn’t expecting, though, was a 14.4% drop in profit.

Telstra put the majority of this down to regulatory changes, such as the ACCC’s decision to limit the amount telcos can charge each other for using each other’s services. As the biggest player in the market, this was a $400 million hit to its bottom line.

The result was enough to put the skids on other telco stocks, with TPG Telecom [ASX:TPM]

and Vocus Group [ASX:VOC] falling 4.8% and 4.6% respectively.

What now for Telstra?

Despite the drop in profit, it’s not all bad news. Telstra is ramping up its market share in an extremely competitive environment.

Over the past six months, Telstra added 200,000 new mobile customers and connected 292,000 new customers to the NBN network — giving it a 51% share of this market. Another 124,000 customers took up bundling packages.

There will be plenty of shareholders sticking around to pick up Telstra’s 15.5 cent, fully franked dividend, due to be paid in March. The real test for long-time holders of Telstra shares will be what the price does after that.

By Matt Hibbard

Matt Hibbard

Matt Hibbard

Editor at Total Income

Matt Hibbard is Money Morning’s income specialist.

With nearly three decades in the markets, Matt has traded just about every asset class there is. The one thing that has stuck with him over this time is a very simple premise. That is, it’s the cash a company generates that ultimately determines its value.

Sure, some stocks might fly away to multi-digit gains. But unless these companies can convert the ‘story’ into real money, the market will eventually find them out. And when that happens, the share price quickly falls back to Earth.

That’s why, over at Total Income, Matt is on the hunt for the next generation of dividend-payers. Stocks that should be able to pay their shareholders reliable and rising dividends into the future.

Matt is also the editor of Options Trader, where he shows subscribers how to use basic options strategies to generate income. This is income they can generate on top of regular dividend payments.

Matt doesn’t play the prediction game, where the aim is to be proven ‘right’. Instead, his goal is to generate as much income as he can for his subscribers, irrespective of whether the market is going up or down.

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