There's no denying it, Telstra Corporation Ltd (ASX: TLS) is one of the best dividend stocks on the Australian Stock Exchange (ASX). If you're a long-term investor, it's appealing for many reasons. Here are three of my favourite.
Return on equity
Return on equity is a key measure of profitability. Compared to other big name stocks like BHP Billiton Limited (ASX: BHP), Wesfarmers Ltd (ASX: WES) and Commonwealth Bank of Australia (ASX: CBA), Telstra has a much higher return on equity, currently over 30%. The higher than average profitability can be attributed to the company's monopoly-like dominance in a number of its key product markets such as mobile, fixed line internet and phone services. Its infrastructure and envious margins afford it a high degree of predictability and safety.
Dividend yield
Predictable earnings make for consistent cash flows and dividends. In the past eight years, Telstra has maintained its 28-cent fully franked dividend but decided to up the payout in 2014. Based on a forecast dividend of 29-cents per share, it's currently yielding 5.58% with full franking.
NAS & International
In addition to established and dominant services here in Australia, Telstra is widening both its range of services and market reach. With demand growing for cloud computing and unified communications, Telstra's Network Application Services (NAS) division drove revenues 29.3% higher to $821 million in the first half of FY14.
With a growing middle-class throughout Asia, Telstra has also moved to capitalise on demand for telecommunications and digital services. Its Autohome.com.cn automotive listing website in China is booming and Telstra is looking to form joint venture partnerships with established businesses throughout other parts of Asia.
Recently Telstra teamed up with Indonesia's biggest telco, Telkom Indonesia, to snatch subscribers away from other established companies such as Singapore Telecommunications Group (ASX: SGT). In the first half of FY14, the international division grew revenues 28.3% to $1.053 billion.
Foolish takeaway
As a market leader with superior services, Telstra has proven to be a very lucrative investment for income investors over the past three years. In the next five years, its dominance appears set to continue. With growing overseas revenues and higher cash flows, debt is likely to drop and the dividends could be expected to increase beyond 29-cents per share, making room for further share price appreciation.
