Why did the Telstra share price outperform the ASX 200 in August?

The Telstra Corporation Ltd (ASX: TLS) share price managed to beat the performance of the S&P/ASX 200 Index (ASX: XJO) in August.

Looking at the numbers, Telstra shares went up by 2% while the ASX 200 only went up by 0.6%.

A lot of businesses reported during August 2022, including Telstra. Investors got a good insight into how the telco performed over the prior twelve months. We got a view of how things are turning around and Telstra also revealed an exciting development for shareholders.

Telstra FY22 earnings recap

The telco giant said that its total income fell 4.7% to $22 billion and the underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) increased by 8.4% to $7.3 billion. The underlying earnings per share (EPS) jumped 48.5% to 14.4 cents.

Management said that the mobiles division performed “very strongly”, with EBITDA growth of 21.2%. The postpaid handheld average revenue per user (ARPU) grew by 2.9% and mobile services revenue rose by 6.4%. The company added 155,000 net retail handheld services.

The company revealed that Telstra Health is on track to become a $500 million revenue business by FY25. Telstra Health FY22 revenue jumped 51% to $243 million after including the acquisitions of MedicalDirector and Power Health.

Telstra Health was also selected by the government to run the 1800RESPECT service. This division could have a growing influence on the Telstra share price in the coming years.

Perhaps two of the most important numbers in the result showed growth. The free cash flow increased by 5.9% to $4 billion. Telstra also increased its dividend for the first time in seven years. The board decided to increase the half-yearly dividend by 6.25% to 8.5 cents per share.

The outgoing boss of Telstra, Andy Penn, said this about the dividend increase:

This represents the first increase in the total Telstra dividend since 2015 and recognises the confidence of the board following the success of our T22 strategy, the ambition in our T25 strategy of high-teens EPS growth from FY21 to FY25, the strength of our balance sheet and the recognition by the board of the importance of the dividend to shareholders.

Dividend growth may be very important for some investors looking at the Telstra share price.

Telstra is expecting growth in the next few years as it rolls out 5G to locations and customers.

The telco is looking to generate attractive profit growth by cutting costs and also growing revenue. Telstra recently implemented price rises for many postpaid customers – this could help revenue and profit.

Are brokers optimistic about the Telstra share price?

The broker Morgans liked the FY22 numbers and is expecting profit growth in FY23 and then in FY24. It’s expecting the elevated dividend payment to continue from here. Morgans has a price target of $4.60 on Telstra, implying a mid-teen rise for Telstra shares.

Ord Minnett also rates Telstra as a buy, with a price target of $4.60. It likes Telstra’s strong positioning as the leader in mobile, and 5G is expected to help Telstra. It’s expecting profit and dividend growth in the coming years.

The post Why did the Telstra share price outperform the ASX 200 in August? appeared first on The Motley Fool Australia.

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More reading

• Why did the Telstra share price beat the ASX 200 today?
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Telstra shares offer a dividend yield over 4% right now. Is this as good as it sounds?
• Here are the 3 most heavily traded ASX 200 shares on Monday
• How much income will Telstra shares pay for FY22 after this month’s dividend hike?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. 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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