In the past five years Telstra Corporation Ltd (ASX: TLS) shares have increased a whopping 60%, not including dividends. As interest rates fell, Telstra's share price was the beneficiary of investors fleeing from the poor returns offered by term deposits and savings accounts.
However until very recently, its shares had seemingly grinded to a halt around $5.05, which was perhaps a chance for shareholders to take profits and assess their alternatives. But it appears investors are back in force, with shares today trading above $5.20.
So can the upward trend continue?
It appears it can. Although it'll likely be more modest than what we've experienced in recent years because there are no major macroeconomic catalysts driving up demand for high dividend yielding stocks, such as those which we experienced in 2012/2013.
However, at the company level, Telstra is in a period of transition whereby it is becoming a more agile telecommunications company. It is ridding itself of its poorly performing assets like Sensis and focusing on its high-margin businesses whilst also pursuing an overseas expansion.
It's mobile, fixed data and fixed line businesses provide the perfect platform for it to grow the rapidly expanding Network Application Services (NAS) and International divisions. Both of which, notched up revenue growth near 30% in the first-half of FY14, taking their combined contribution to around 15% of group revenues. These divisions will drive up earnings in the next five years, and could be the reason why shares reach $6.00 in the near future.
In addition, ongoing payments from the government's NBN Co and the likelihood of increased dividends will support a higher share price in case of an economic downturn.
Foolish takeaway
Personally, at current prices, I'd prefer to add Telstra to my portfolio before the two supermarket giants Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW), and well before the big banks. I believe it'll reach $6 per share in time (whether it does so next month or next year is anyone's guess), because demand for its services is increasing rapidly and it also pays a growing 5.5% fully franked dividend.
