Telstra Corporation Ltd [ASX:TLS] shares are up today 3.64%. At time of writing, the Telstra share price was trading at $3.84.
Why are Telstra shares up?
Telstra is an Australian telecommunications company and has Australia’s largest mobile network.
Shares are trading higher today after Credit Suisse analysts increased Telstra’s share price target 20 cents, to $3.90.
Here is what Credit Suisse said in regards to the upgrade (courtesy of the Sydney Morning Herald):
‘The increase in our target price is primarily driven by lower capex assumptions.
‘While we recognise the stock has had a good run over the past 12 months, momentum is positive and given upside from current trading levels.
‘Telstra’s dividend remains sustainable…within the company’s existing payout policy, with one-off NBN receipts effectively filling the hole…over the next couple of years while underlying earnings decline. With the capex trending lower than D&A over the forecast horizon there may be some scope for the payout ratio to be increased.’
Telstra shares have rallied higher this year by almost 40% from $2.77. Yet shares are still trading lower compared to four years ago when shares hit a high of $6.61 in 2015.
One of the reasons for this is that Telstra has taken a financial hit with the roll out of the National Broadband Network (NBN), which has also led the share price lower.
What could happen next?
Telstra has launched the T22 program to simplify operations, product offerings and reduce costs.
The company is also looking to become a market leader in 5G. In fact, there is a lot of momentum and expectation as more 5G able mobile phones are expected to become available next year and Telstra is looking at increasing their coverage to 25 cities in FY20. Yet this also means more investment in infrastructure.
With interest rates here in Australia going lower and term deposits paying peanuts, investors may shift to riskier plays like dividend paying companies in search of higher returns.
Credit Suisse has updated their Telstra outlook on lower capex and their current dividend looking sustainable. Telstra is currently paying a dividend yield of 2.7%, yet there may be better dividend plays out there.
Check out our brand new dividend report ‘Top Five Dividend Stocks for 2020’ here.