Telstra hits five year high

Is it still a buy at this price?

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Telecommunications giant Telstra Corporation’s (ASX: TLS) shares have hit their highest price in five years. The last time Telstra shares reached $4.80 was way back in May 2008. It still a long way off its all-time highs of $9.20 reached back in February 1999.

Those investors lucky enough to pick up the stock at its all-time lows of $2.55 in November 2010, will be cheering, while many shareholders who subscribed during T1 and T3, when the government sold off the business, at prices of $3.30 and $3.60 respectively are finally seeing a return on their investment. T2 subscribers are still underwater – shares were issued at $7.40, but they may not have long to wait to see a positive return.

Telstra’s share price has rallied over 40% in the last year, after being a bargain for much of it. At current prices, the company is still paying a 5.8% fully franked dividend – over 8% grossed up.

Eat that term deposits!

While growth is going to be hard to come by – most Australians have a smart phone now, and many have tablets, while its fixed line business is in steady decline, the company is set to pay a 28 cent dividend this year, and that could rise in future years. As compensation for moving customers off its fixed-line business, Telstra is being compensated to the tune of around $11 billion in today’s money. Some of that could be returned to shareholders as special dividends or a share buyback.

While almost all its divisions appear to be running smoothly, the one fly in the ointment is the Sensis business, which contains the White and Yellow pages, as well as website The Trading Post. Revenues have been falling, and Sensis faces overwhelming competition from Google. Should Telstra find a way to turn this business around, or jettison it completely, that should see a positive impact on the share price.

Foolish takeaway

Telstra’s competitors are struggling to keep up, let along compete effectively with the giant telco. Optus – owned by Singapore Telecommunications (ASX: SGT) and Vodafone – half owned by Hutchison Telecommunications (ASX: HTA), have yet to fully implement a 4G network, and are facing intense pressure to keep their customers from switching to Telstra.

With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. Chances are even if you don’t own Telstra shares directly, your superannuation fund does. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: Buy, Sell, or Hold Telstra?

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Telstra.

 

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