Telstra Corporation Ltd (ASX: TLS) shares are some of the most heavily traded on the S&P/ASX 200 Index (ASX: XJO) (^AXJO). As one of Australia's biggest companies, investors go in search of something unique each time they trade the stock. That's because there are many reasons to add this household name to your collection. However to narrow it down, here are three of the best reasons to add it to your portfolio.
Dividend Yield
Telstra's dividend is legendary. Although for much of the past 10 years its share price spent its time falling in value, its dividend has remained the selling point. For over eight years, the dividend of 28 cents per share was maintained despite ballooning debts and increased competition. Now, in 2014, its full-year payout is expected to reach 29 cents, giving it a forecast yield of 5.7% fully franked. That's higher than the payouts from both Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX:WBC).
Return on Equity
As a company grows, costs increase and competition usually forces down prices putting pressure on margins. Despite the looming threat from rival telcos such as M2 Group Ltd's (ASX: MTU) Dodo and Primus, TPG Telecom Limited (ASX: TPM) and iiNET Limited (ASX: IIN), Telstra still controls a majority of the broadband market. In mobiles, Telstra also has a commanding lead over Singapore Telecommunications Ltd's (ASX:SGT) Optus and Vodafone. The dominance allows the company to maintain a return on equity of 26.8% across the group. By comparison the banks struggle to hold that figure in the mid-teens.
Safety
Telstra's top dog status in mobiles, fixed Internet, business, network and, more recently, technology combined with growing cash-flows, rising dividend yields and reduced debt encourages investors to believe its about as 'risk free' as stocks can be. I too believe Telstra's unique market position affords it a high degree of safety.
Foolish takeaway
In my opinion, Telstra is one blue-chip which investors can buy and rest easy knowing the company occupies a very strong market position with products which continue to see increasing demand from consumers – allowing high margins. The margins allow it to pay out a terrific dividend yield which gives it a buffer in times of low interest rates. When combined, these traits create a solid and compelling long-term investment case.
