Telstra Corporation Ltd (ASX: TLS) continues to impress it shareholders with both share price increases and generous dividend yields. In the past three years, Telstra shares have a return on investment of approximately 56% (including dividends). This no doubt has some investors wondering whether it can continue.
Here are five reasons why I think Telstra is a good long-term buy and hold investment which could easily go higher than its current price of $5.28, over time.
1. Telstra has dodged a bullet by selling its legacy copper cable network to the government's NBN Co and divesting part of its struggling Sensis business. In recent years, both of these businesses have been a drag on the telco.
2. Its move into Asia opens many doors to growth. For example, Telstra can choose to team up with existing companies in the region, grow acquisitively or expand its digital offering. CEO David Thodey hopes to draw a third of revenues from the region by 2020.
3. As our country's largest telecommunications company Telstra will play a crucial role in Australia's networked future. From PCs and mobiles to wearable devices, cloud computing and machine-to-machine communication, each will require a faster internet connection and consume more data.
4. Its free cash flow is growing, affording management the possibility to increase dividends, pay down debt or buy back shares. This will put upwards pressure on its market price.
5. Low interest rates and improving consumer confidence are driving demand for high-yielding dividend stocks. With a 5.4% fully franked dividend yield, Telstra is a prime candidate for new money entering the market.
A BETTER dividend than Telstra's
Blue-chip stocks such as Woolworths Limited (ASX: WOW), Telstra and Commonwealth Bank of Australia (ASX: CBA) are renowned for their generous dividends. However, given their sheer size, it's hard for them to grow rapidly.
