Telstra (TLS) +2.52%:A good update from the Telco today with pretty much everything inline with expectations including the 8cps dividend for the half, however one thing stood out and is the reason why the stock rallied. Expectations for free cash flow (FCF) were increased from the prior range of $2.8bn-$3.3bn to $3.3bn-$3.7bn which all but ensures the dividend of 16cps pa is very sustainable and there could be upside in that number, something that is certainly not being factored in by the market. We wrote the following about TLS when we bought the stock ~$2.88. In broad terms, a sustainable dividend we think is enough to support the share price up to about a 4.5% yield which equates to a SP around $3.50, then if earnings can show some growth, we think there is a very plausible path for TLS to trade back up towards $4.00.
MM is bullish Telstra (TLS) for income
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