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Telstra closes in on $5 mark

Telstra Corporation (ASX: TLS) is on the verge of passing the $5 per share mark. In trading so far today, the company’s share price hit a high of $4.99.

Two years ago, it was trading at half that price.

In the past year, Telstra’s shares have surged by more than 40%, double the S&P / ASX 200 Index’s (Index: ^AXJO) (ASX: XJO) return of 19.8%, as investors dive into the stock for its dividend yield. At current prices, Telstra is still paying a fully franked dividend yield of 5.6%, or around 8% when you include the franking credits.

With interest rates falling, term deposits and bank savings accounts have become low return assets, and investors have been looking for higher returning assets. Even international investors have been seeking out higher yielding assets, with investments in liquid, low-risk assets such as government bonds in countries like the US, UK and Japan offering below inflation rate returns.

With its large market cap and dominance over its competitors, Optus – owned by Singapore Telecommunications (ASX: SGT) and Vodafone – part-owned by Hutchison Telecommunications (ASX: HTA), as well as payments of close around $11 billion from the federal government to switch its customers from copper line to the National Broadband Network (NBN), Telstra appeals as a lower risk equity investment.

The fact that the company is likely to grow its dividend in future years also makes it attractive. Investors just love the certainty, that barring the company blowing itself up with some stupid investments, they know they will receive a dividend of at least 28 cents. Any capital gains are just icing on the cake.

While many analysts have suggested that Telstra’s business is largely mature – there’s only so many mobile phone subscribers it can gain in Australia – much of Telstra’s future growth is likely to come from its smaller businesses such as software, data usage, data centres and the services it provides to corporate and institutional customers.

Foolish takeaway

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 to find out whether to buy, sell, or hold Telstra in this brand-new FREE report.

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). Motley Fool writer/analyst Mike King owns shares in Telstra.

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