Telstra is expensive. But you can't argue against its solid earnings, dividend and buyback

Telstra (ASX: TLS) shares are surging after a first-half result that delivered on what matters most to its investor base: shareholder returns. The stock opened 1.2% higher and is currently up 4.9% to $5.21.

The interim dividend was increased by 10.5% to 10.5 cents, tracking ahead of consensus expectations of 9.7 cents. Telstra also upsized its on-market buyback from $1 billion to up to $1.25 billion, a notable move given current share price strength and what are arguably full valuations.

This leaves Telstra in a tricky place. The optimism around solid earnings and strong shareholder returns is hard to argue with, but it now comes with a fairly expensive price tag attached.

To unpack the result and weigh up the trade-off, I caught up with Anna Milne, deputy portfolio manager at Wilson Asset Management, to get her views on the telco and where it goes from here.

1H26 at a glance

• NPAT up 10% to $1.12bn vs $1.16bn ests (3% miss)
• Interim dividend up 10.5% to 10.5 cps vs 9.7 cps ests (8% beat)
• Mobile services revenue up 5.6%, with Mobiles EBITDA growing $93m, driven by higher ARPU and customer additions
• Underlying operating expenses cut by $179m (2.4%), delivering positive operating leverage of 3.1 percentage points
• On-market share buyback upsized from $1bn to $1.25bn, with $637m already completed in the half
• FY26 underlying EBITDAaL guidance tightened to $8.2-8.4bn (from $8.15-8.45bn prior), all other guidance reaffirmed

Do you currently hold the stock and what is your rating?

We currently hold Telstra. Our rating on it is broadly neutral, it feels fairly valued but is a high quality blue chip seen as a core holding for ASX large cap portfolios.

What matters from the results? 

Mobile subscriber growth, costs and capital management.

Mobile subscribers were slightly below expectations, partly offset by a beat at ARPU. Costs showed good containment, aiding in the small EBITDA beat. Capital management was strong, with a 10.5 cps dividend and their on-market buyback upsized by $250 million.

How do those outcomes affect the outlook?

Telstra does screen on the more expensive side at 24x PE, versus its 10-year average of 18x. But it is a solid earnings compounder in an uncertain environment, delivering 5% earnings growth, a 4% dividend yield, and an ongoing buyback.

What should investors be paying attention to as the story unfolds?

The telco market is competitive, so any changes in intensity are watched very closely. Currently, the industry is focused on lifting sector returns, but should any player significantly break rank, this is a risk. The market also under-appreciates the strategic importance of Aura, their intercity fibre network and the importance of this infrastructure to the broader AI story playing out globally.

What could you be wrong about? 

Telstra’s earnings are relatively predictable, so the bigger swing factor for this stock is sentiment and valuation expansion and compression. If the market returns to a significantly “risk on” environment, as a defensive, Telstra likely underperforms higher beta peers.