Telstra just announced its dividend! Are Telstra shares now a buy?

Telstra Corporation Ltd (ASX: TLS) is the latest S&P/ASX 200 Index (ASX: XJO) company to announce its full-year earnings for FY2020, which were divulged this morning. Evidently, the market didn’t really like what it saw, given that the Telstra share price is down around 5.6% at the time of writing to $3.20.

I can see why investors are a little sceptical of our largest ASX telco today. Telstra reported earnings within its guidance range. But the $7.4 billion of earnings before interest, depreciation, tax and amortisation (EBITDA) was 9.7% lower than FY2019’s earnings. As a Telstra shareholder myself, I’m not too worried though. The coronavirus pandemic was always going to have something of an impact on Telstra’s numbers, which ended up impacting around $200 million in earnings. And the NBN is still draining money away from the telco.

But there was one bright spot for me as a shareholder. It was the announcement that Telstra will be continuing to pay a dividend worth 8 cents per share.

In a year where former dividend heavyweights like the ASX banks, Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) have been deferring, slashing or cancelling their dividend payments, Telstra is a pillar of strength in my view. With the Telstra share price of $3.20, the 8 cents per share dividend equates to an annualised dividend yield of 5%. Including Telstra’s full franking credits, this yield grosses-up to 7.14%.

You could do a lot worse in this era of record-low interest rates!

What about Telstra shares and 5G?

But dividend income alone isn’t all I see in the future of Telstra shares. The company is also heavily investing in the next generation of mobile technology: 5G.

5G promises to overhaul the way we use the internet. Its potential applications range from NBN-beating speeds with low latency to the Internet of Things (IoT). In its earnings report this morning, Telstra told investors that it expects its 5G coverage “will reach around 75% of the Australian population by June 2021”. I’m confident Telstra’s market dominance will be extended into the 5G realm due to the company’s first-mover advantage. It is already well ahead of its competition (including the newly merged TPG Telecom Ltd (ASX: TPG)) in its 5G investments and rollout. This could lead to a new and lucrative stream of revenue for Telstra very soon.

Foolish takeaway

All in all, I think Telstra shares represent a great investment today, despite the company’s patchy earnings report. In my eyes, you are getting a dividend heavyweight offering a sustainable 7.14% grossed-up yield, with a potentially lucrative 5G growth avenue right in front of it. Not a bad offering in these uncertain times, I reckon!

More reading

• Why AGL, Breville, CBA, & Telstra shares are dropping lower today
• ASX down 0.55%: Telstra maintains its dividend, Treasury Wine shoots higher, AMP’s special dividend
• Why the Telstra share price has tumbled 5% this morning
• Telstra hits guidance and declares 16 cents per share FY 2020 dividend
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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