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3 reasons I’m watching Telstra (TLS) shares like a HAWK

The Telstra Corporation Ltd (ASX: TLS) share price has been swamped in recent weeks, falling more than 10% in a month and 20% over the year.

TLS share price versus S&P/ASX 200

TLS share price

Source: Google Finance

The chart above compares the Telstra share price to the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), over the long term.

As can be seen, it’s been a tough run for the $50 billion telecommunications giant. Since 2014, the company’s share price has fallen from around $6.60 to today’s price of $4.17.

Nonetheless, here are three reasons I have Telstra shares firmly on my watchlist.

Mobiles. Telstra is the leader in mobiles. It has the widest coverage and the best reception. While the business is still a powerful player in broadband and fixed products, mobiles appear to be the key market for its future. And with speeds and data limits increasing, it’s likely that many consumers will be using only mobile networks in the future.

NBN. The NBN will make every fixed telecommunications provider a ‘retailer’ of products. That means lower profit margins for some providers. However, Telstra is being compensated for giving up its copper network to the NBN. These lucrative payments will enable it to invest for growth, strengthen its balance sheet or return dividends to shareholders.

Dividends. Based on forecasts by analysts, Telstra is expected to pay dividends of 31 cents per share over the next year. At today’s reduced share prices, that’s a forecast dividend yield of 7.4%. And if we include franking credits, it’s after-tax dividend yield is over 10%.

Foolish Takeaway

Telstra shares are nearing the buy zone in my book. While growth might slow in coming years, the tax-effective income provided via its dividends is very appealing. The company’s shares could come under further selling pressure in the near term — I’d look to buy its shares below $4.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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