Is it time for investors to hang up on Telstra shares

Published in the Daily Telegraph, May 2018 by Anthony Keane

Long-suffering Telstra shareholders should rethink their investment as the communications giant gets battered on financial markets.

More than 1.4 million shareholders – many of them mums and dads who bought into Telstra through government floats – have watched their shares sink 36 per cent in value and their dividends drop in the past year.

This week’s mobile network outage didn’t help, and while forecasters predict more pain ahead, some believe it may soon be a buying opportunity.

Telstra’s share price has more than halved in three years and its current price below $2.90 is worse than what people paid when it launched on the stock exchange in 1997 at $3.30 a share.

“This is Australia’s most widely held stock and a lot of people have been burnt badly,” said CMC Markets and Stockbroking chief market strategist Michael McCarthy.

“A lot of investors would say I have been hit so hard there’s no point selling now, but the prospects for Telstra remain very grim.”

Telstra’s annual dividend has dropped from 31c to 22c in the past year, and analysts say it could go below 15c soon.

Mr McCarthy said Telstra would find it difficult to grow because it already was the “big beast in the jungle”.

He said people should make investment decisions based on their own personal circumstances but “from my point of view, there’s no reason to continue to own Telstra stock”.

Telstra’s problems have included intensifying competition and the impact of the National Broadband Network.

Wealth Within chief analyst Dale Gillham said it still controlled most of Australia’s telecommunications industry and was not going away.

“Over 20 years all I kept saying to people was ‘why are you holding Telstra?’

They said ‘dividend yield’ and I said ‘why, when you are losing so much money?’” he said.

Mr Gillham said he liked Telstra as an investment now, because people were getting sick and tired of the stock and selling out.

“Usually when mums and dads start doing that, that’s when it’s going to go up.”

Investment funds were also selling Telstra, he said, and waiting for it to bottom out before they started accumulating again.

“It’s still a little early to get in, but I would say in the next month or two it will start to move up again.”

Baker Young Stockbrokers managed portfolio analyst Toby Grimm said Telstra shareholders should ask themselves why they were holding the stock.

“If you think you will get a 21c-22c per share dividend, maybe you need to reconsider,” he said.

“Telstra has gone from being a monopoly-style business to being a level playing field competitor in a very competitive space …

There needs to be a major resetting at Telstra so there could be some bad news to come. “It has fallen substantially and we think there’s value emerging.

We have been nibbling at it, buying a few – we think it’s a ‘hold’ but we are certainly not piling into it. Rebalance your expectations.”