It was always one of those no-brainers.
Like the falling iron ore price or Australian dollar, Telstra Corporation Ltd (ASX: TLS) shares were always likely to be a beneficiary of falling interest rates. Just think about it, when the RBA began its easing bias back in November 2011, Telstra shares were offering a fully franked dividend yield of 8.9%, or 12.7% grossed-up!
What's more, if you bought and held on since then, you'd be sitting on capital gains of 73%.
Compare that to the falling interest rates on term deposits or bonds and you would've been very well rewarded for your foresight.
I first bought Telstra shares in March 2012 but sold out for a gain which was far less impressive.
I sold out because I thought my money could be better spent elsewhere (and it was) but in exiting my position I incurred a tax expense, missed out on a big portion of the stock's subsequent rally and the juicy dividend payments which Telstra offers twice per year.
It's never easy to know when it's a good time to sell a stock. Especially a winning one. But I make it simple by asking myself if I honestly expect the stock to produce greater returns than the broader market. That is the S&P/ASX 200 (INDEXASX: XJO).
If it can produce market-beating returns then it's worth holding, if not then perhaps it's time to look elsewhere. I assume the market will grow by at least 10% per year.
Your objectives may be different to mine and that's fine. If my goal was to derive a reliable income source then I'd hold Telstra. No one knows for sure whether a stock will rise or fall in the immediate future, so we need to focus on the long term to see if Telstra can beat the market.
Looking ahead, Telstra has forecast "low-single digit income and EBITDA growth". Remember, investors have the right to be very sceptical of companies which use an EBITDA multiple.
Longer term, Telstra's Asian strategy is a big unknown because it could be promising but it could also expose investors to unnecessary risks. However I think Telstra has got the right management team in place to do it with minimal risk.
In addition Telstra will, thanks to its superior network and dominant market position, continue to grow revenues from its Mobiles and Network Application Services (NAS) divisions.
Buy, Hold, or Sell?
I don't think Telstra is an excellent 'Buy' at current prices. However so long as your cost base has a healthy buffer on the current share price (anything between $4.00 and $4.80 would be good) then I think it'd be a great investment to hold through the next market cycle. Especially whilst interest rates are so low!