In my opinion, Telstra Corporation Ltd (ASX: TLS) is one of the best dividend stocks on the ASX.
Its dominant market position, a big pile of cash, and tailwinds at its back, mean shareholders can rest easy knowing that its current 4.8% fully franked dividend yield is sustainable.
However, at a price of $6.27, Telstra shares are currently changing hands at a price-earnings ratio of 18x, whilst profit growth in the year ahead is expected to be only slightly higher than last year.
That means investors who choose to buy in now may put their money at an unnecessary risk if the company cannot deliver or beat expectations.
However, with an average price target of $5.96 on Telstra shares according to the Wall Street Journal, I do not think the market has priced in anything less than an expectation-beating profit result.
That's why Telstra isn't in my portfolio right now.
Instead, I've got my eye on some less obvious dividend-paying shares.
Indeed, I think these next two stocks are reasonably priced and offer more upside potential over the next three to five years than Telstra shares.
- Coca-Cola Amatil Ltd (ASX: CCL) is Australia's distributor of Coca-Cola and Beam-branded beverages. Its share price was hit hard in 2013, and again in 2014 on the back of profit downgrades as well as write-offs within its tinned-fruit business, SPC Ardmona. However the worst now appears to be behind it and management are targeting a return to profit growth in the near future. Coca-Cola Amatil shares are also tipped to pay a dividend of 4.16% partially franked in the next 12 months.
- Sky Network Television Ltd (ASX: SKT) is New Zealand's dominant pay-tv operator with a household penetration rate of around 48%. In February, Sky reported a 12.7% jump in half-year profit, and its shares have since climbed 7.8%. However, even at today's prices the valuation of Sky's shares do not appear demanding. Moreover, it is currently being tipped to pay a dividend equivalent to 5.4%.
