The 'chase for yield' as it has been termed has seen many investors pile into Telstra (ASX: TLS) and the major banks with the aim of securing a solid dividend yield. While this is understandable given the low interest rates on offer with a bank deposit, it has the potential to blind investors to the outstanding opportunities to purchase companies with strong growth potential.
Last financial year, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) rallied around 17%. In comparison Telstra shot up about 30%, which was certainly great outperformance and of course there was the juicy Telstra dividend too. Investors who looked past Telstra however could have earned significantly more capital gains and still received respectable dividends had they investigated some of Telstra's smaller and more nimble competitors.
TPG Telecom (ASX: TPM), which is particularly active in the ISP market continues to grow its market share. TPG saw its share price rally from around $1.70 to $3.50 over the 12-month period, which provided shareholders with an outstanding return of 106%.
iiNet (ASX: IIN) which has grown beyond its original Perth base also focusses on the ISP market. It ran a very close second to TPG in terms of share price growth with iiNet surging from just over $3.00 to $6.20, providing shareholders with 104% returns.
M2 Telecommunications Group (ASX: MTU) started last financial year at $3.30 and finished the year at $5.85, a return of 77%. M2 has undertaken a number of recent acquisitions, including the iPrimus and Dodo businesses, which have set the stage for further earnings growth in coming years.
Foolish takeaway
Most investors would rather a return of 106%, 103% or even 77% over 30%, however many investors may currently be blinded to the potential capital gains of growth stocks by their fixation of dividend yields.
Savvy investors are now seeking growth in smaller companies. Discover two stellar small-cap opportunities now, in our brand-new research report, "2 Small Cap Superstars" — simply click here to download your FREE copy.
More reading
Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
