Telstra [ASX: TLS] has been one of the poorest performers on the ASX this year.
Aggressive competition in the mobile and broadband markets have created widespread unease over the sustainability of its dividend, and the telecommunication titan’s share has dropped by over 23% since the beginning of the year.
But morning trading has seen a sharp spike of nearly 3%.
UBS upgrades Telstra to a ‘buy’ rating
A disastrous network outage added fuel to the fire earlier this week, but in an interesting turn of events, multinational investment firm UBS have upgraded Telstra to a ‘buy’ rating.
Other analysts at Citi and Deutsche Bank still have much lower price targets on the company, but investors who aren’t afraid of higher risk will be interested to consider the opportunity.
The broker has considered that Telstra may look to bypass the National Broadband Network (NBN) and work on an assertive push to grow its market share.
At the current share price, Telstra’s 22 cents per share dividend provides investors with a fully franked 7.9% yield in FY 2018. If that dividend is sustained into the next financial year, then investors could at least enjoy a relatively strong yield.
What’s next for Telstra?
An investment in Telstra carries a significantly higher risk than it used to. Much will depend on the success of its efforts to cut costs, and CEO Andy Penn’s ability to deliver on his promises.
Some commentators are evidently seeing value in its shares at this level, while others have speculated that the market has now priced in a future dividend cut.
It’s not all bad news for Telstra, but the market is undeniably going through a volatile period in history. The ideal investor would need to be patient, optimistic and willing to take any unforeseen blows…
Editor, Money Morning
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