Telstra moves into the spotlight

Telstra (ASX: TLS) may have been denied an acquisition of Adam Internet last month but it hasn’t stopped Australia’s telco giant from pursuing other avenues of investment.

According to The Financial Review Telstra is believed to be acquiring a stake in a cable called APX West, which runs from Perth to Singapore. The cable is to be laid by former Telstra executive Ted Pretty and will cost $200 million in total. Telstra is looking to acquire a 20% stake in the 4600 km cable because it is likely to use up to 25% of it.

This isn’t the first time Telstra has funded such a deal, but with the National Broadband Network set to chip away at Telstra’s competitive advantage the telco is looking at other ways to maintain its huge customer base. The company’s outlook will be a focal point for tomorrow mornings annual report.

Not only will the company’s 2014 growth and sales guidance be under the spotlight, capital expenditure, free cash flow and its dividend will also be hot topics. Many are predicting a rise in its legendary 28-cent dividend in the next two years and investors are hoping it will be consistently paying a 30-cent dividend by FY15.

For FY13, this Fool is predicting solid single-digit growth in total sales revenue to between $25.6 billion-$25.75 billion, up from $25.2 billion in FY12 and a net profit of around $3.7 billion, up from $3.4 billion last year.

UBS and Macquarie expect a higher (30 cent) FY14 dividend but expect its FY13 full year dividend to remain at 28 cents. Morningstar is not so bullish on the FY14 guidance but still predicts a 1 cent increase and a 31 cent dividend by FY15. UBS and Morningstar are also expecting special dividends to be paid from FY14 onwards.

Foolish takeaway

In the S&P/ASX 20 (ASX: XTL), Telstra remains one of the most lucrative investments for investors chasing yield. However the company’s new focus on customer service and increasing number of subscribers to both mobile devices and bundled packages should see it retain its crown as number one telco for the foreseeable future.

With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: “Is It Time to Sell Telstra?”

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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