The main reason behind the rallying share prices of big dividend stocks, like Telstra, has been falling interest rates globally. With interest rates next to zero in many developed nations or, in Europe's case, below zero, the demand for stable dividend stocks is higher than ever.
However with its share price rising over 82% in the past three years, I believe Telstra shares are now fully valued. But, that doesn't make them a 'Sell' either. Here's why:
1. Dividends are in vogue. Telstra has one of the most reliable dividends on the ASX. As long as we continue to increase our usage of telecommunications services it appears Telstra will be able to afford to pay a 28 cent dividend per share, or more.
2. It's got cash. And plenty of it! Thanks to its huge margins on services such as fixed internet, mobile data & IP, Telstra generates huge cash flows. This year, it has the added benefit of inflows from asset sales, making the prospect of bigger dividends or share buybacks a reality.
3. Asia is now in the crosshairs. Recently CEO David Thodey announced the telco giant has plans to grow its Asian exposure to around one third of total revenue. This can be risky but Telstra's recent success in the region should give investors renewed confidence in the company's ability to grow overseas.
A better dividend stock than Telstra – Free!
As I noted above, Telstra shares aren't cheap. As a result I believe investors who are looking to invest in a big dividend stock should try and find other cheaper, growing companies listed on the ASX.
