One thing that divides opinion among investors right now is the sustainability of the Telstra Corporation Ltd (ASX: TLS) dividend.

I believe the 16 cents per share dividend is sustainable from its current cash flows, but some believe another cut is coming with its full year results in August.

And while Telstra could decide to be conservative with its capital because of the pandemic and cut it down to 14 cents per share, I’m optimistic that this won’t be necessary.

One broker that believes Telstra’s dividend cuts are over is Goldman Sachs. This morning it revealed a few reasons why it is forecasting a 16 cents per share dividend through to FY 2023.

Why is Goldman Sachs positive on Telstra?

Goldman Sachs has downgraded its earnings estimates for the next few years. This is to reflect the timing of the NBN rollout, mobile average revenue per user declines (in respect to lower mobile roaming revenues), and higher bad debt charges and labour costs.

However, it doesn’t believe this will be enough to force a dividend cut for three reasons.

Goldman commented: “In an NBN world, with capex/sales of c.12%, we estimate TLS will generate 24¢ps of cash in FY23E, comfortably funding a 16¢ dividend (66% payout vs. 70-90% EPS target).”

The broker also expects its earnings to be strong enough in FY 2022 to support the dividend. “Our FY22E underlying EBITDA of $7.9bn is above TLS targeted $7.5bn to maintain its 16¢ dividend,” it added.

And in the near term, it believes “it is unlikely TLS would have accelerated $500mn in capital spend in CY20, should this have impacted its ability to fund the dividend.”

Goldman Sachs stress tested its dividend assumptions under three bear case scenarios. These include the permanent loss of roaming revenue, fixed margins of 0% in FY 2022 and FY 2023, and the halving of data and IP earnings from the NBN impact.

In each of the scenarios, the broker found that Telstra would have “an adequate buffer to maintain its 16¢ dividend.”

In light of this and with its shares trading at a significant yield spread to the Australian bond rate, the broker has held firm with its conviction buy rating and given its shares a $4.05 price target.

I agree with Goldman Sachs on Telstra and feel it would be a great option for income and value investors right now.

More reading

• Why is the Telstra share price being left behind?
• 5 things to watch on the ASX 200 on Friday
• 3 strong ASX dividend shares with fully franked yields
• TPG Telecom shares jump on demerger and special dividend plans: Should you invest?
• 3 safe and strong ASX dividend shares to buy right now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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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It seems that everyone is attempting to invest like Warren Buffett in recent months. To be fair, there are worse investors to mimic than the ‘Oracle from Omaha’.

The S&P/ASX 200 Index (ASX: XJO) is down 17% in 2020 amid the coronavirus pandemic and a Saudi Arabia-Russia oil price war. Broad market share price falls can present the perfect opportunity to try your hand at value investing, but there are some drawbacks.

So, before you dive in and try to invest like Warren Buffett in 2020, here are a couple of things to consider.

Not everyone can invest like Warren Buffett

There’s a reason Warren Buffett is a billionaire. Apart from the fact he’s been investing since his younger years, he’s also been perhaps the greatest value investor of our time.

If everyone could invest like Warren Buffett, they would! It’s easy to say why ASX 200 shares have climbed after the fact, but it’s much harder to predict where they’re headed. Even if you think you know, the final step of investing your hard-earned cash is often the hardest.

While there are definitely buying opportunities amongst ASX 200 shares right now, it can be risky to start stock picking on a whim.

Trust your investment strategy

The current climate could be a great time to invest like Warren Buffett but it’s not without its challenges. ASX 200 share prices have been extremely volatile in recent weeks. There’s a good chance that investors have oversold and overbought many companies amid the pandemic panic.

Furthermore, it’s also hard to pick stocks for long-term value. No one can accurately forecast the next 6 months, let alone the next 5 years. That means finding undervalued ASX 200 shares with long-term prospects could be beyond your average investor.

I think a pandemic is the worst time to change your investment strategy. And anyway, you’re not investing like Warren Buffett if you’re buying and selling in the short-term. I believe the best way to navigate any share market storm is by sticking to your tried and true investment strategy.

Foolish takeaway

There’s no point having an investment strategy if you change it at the first sign of trouble. This means that while you could invest like Warren Buffett in 2020, sticking to your original plan is likely to payoff in retirement.

More reading

• Why is the Telstra share price being left behind?
• Are ASX 200 REIT shares a dividend trap?
• 5 things to watch on the ASX 200 on Friday
• The “most profitable” ASX airline stock you probably never heard of
• ASX retail stocks facing new billion-dollar earnings scare during COVID-19 recovery

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Wesfarmers Ltd (ASX: WES) share price looks set to end the week in the red following a big announcement.

At the time of writing the conglomerate’s shares are down 1% to $38.46.

What did Wesfarmers announce?

This morning Wesfarmers provided an update on its plans for the struggling Target business.

According to the release, the first phase of its Target review has identified actions to address the unsustainable financial performance of Target and accelerate the growth of its Kmart business.

These actions include converting suitable Target stores into Kmart stores, the closure of a number of Target stores, and the restructuring of the Target store support office.

The company plans to convert between 10 to 40 large format Target stores to Kmart stores and 52 Target Country stores to small format Kmart stores. It will then close between 10 to 25 large format Target stores and the 50 remaining Target Country stores.

These actions are expected to be implemented over the next 12 months, with the majority occurring in calendar year 2021.

In respect to the remaining store network, Wesfarmers is continuing its assessment of strategic options for a commercially viable Target.

Wesfarmers’ Managing Director, Rob Scott, believes the actions will result in a stronger Kmart business and enhance the overall position of the Kmart Group, which oversees both businesses.

He commented: “For some time now, the retail sector has seen significant structural change and disruption, and we expect this trend to continue. With the exception of Target, Wesfarmers’ retail businesses are well-positioned to respond to the changes in consumer behaviour and competition associated with this disruption.”

“The actions announced reflect our continued focus on investing in Kmart, a business with a compelling customer offer and strong competitive advantages, while also improving the viability of Target by addressing some of its structural challenges by simplifying the business model,” he added.

What now?

These actions will come with a cost. The restructuring costs and provisions in the Kmart Group are expected to be approximately $120 million to $170 million before tax in FY 2020. This reflects Target store closure costs, inventory write-offs, and a restructure of the Target store support office.

Non-cash impairment charges in the Kmart Group are expected to be higher at approximately $430 million to $480 million before tax. This includes an impairment of the Target brand name.

Outside this, Wesfarmers will also be making a non-cash impairment in the Industrial and Safety division of approximately $300 million before tax. This relates primarily to the impairment of goodwill.

Some of this will be offset with a pre-tax gain on sale of its 10.1% interest in Coles Group Ltd (ASX: COL) of $290 million. It will also recognise a one-off pre-tax gain of $221 million on the revaluation of its remaining Coles investment.

More reading

• ASX retail stocks facing new billion-dollar earnings scare during COVID-19 recovery
• 3 high yield ASX dividend shares you can buy right now
• 3 ASX retail shares to own for the next 20 years
• Is the Wesfarmers share price in the buy zone?
• Down 10% in 2 months. Are Coles shares a buy today?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. 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.

The post Wesfarmers share price lower after announcing major Target overhaul appeared first on Motley Fool Australia.

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