Motley Fool Australia

Should you buy Telstra?

Yesterday’s full-year report has left some investors with many questions about what to do with Telstra shares. Some potential investors might be thinking that Telstra’s growth years are behind it and mobile dominance cannot go on forever — which seems perfectly logical.

However there are more factors in Telstra’s favour than against it. Every time the market presents us with significant news or periodic reports, it’s important to evaluate a company based on its future prospects, not historical financials. Whether you’ve held the stock for five days or five years, shareholders need to remain objective before committing to the sale of a stock.

Telstra’s report highlighted a few very important statistics that are of particular interest to this Fool. First is its dominance over mobile rivals, including Optus, owned by Singapore Telecommunications (ASX: SGT), and Vodafone, owned by Hutchison Telecommunications Australia (ASX: HTA). Telstra, despite its huge size, had managed to grow its total number of subscribers by 1.3 million whilst Vodafone has lost 1.5 million customers in three years and Optus’s growth has paused. This number should only grow as Telstra invests more in its dominant 4G network while the others struggle to catch up.

Second, Telstra’s two growth businesses are small but exciting. National Application Services (NAS) grew 17.7% to $1.5 billion for the full-year and its international division grew revenues by 16.2% to $1.73 billion. The results stem from its increased presence in Asia, particularly Hong Kong, and through international agreements with a number of businesses including Fitness First and Jetstar.

Last, the company’s ‘legacy’ PSTN (fixed line) business is going to be tossed out. This has been seen as one of the biggest issues facing potential investors because it has been profitable for the company. Telstra is getting compensated by the government to transition customers away from its copper network to the NBN and that lucrative deal should return in the form of increased dividends to shareholders. This is another reason why the company could prove to be a good buy for investors.

We have seen it in May this year — when interest rates drop, yield plays like Commonwealth Bank (ASX: CBA), Wesfarmers (ASX: WES) and Telstra all jump significantly. With interest rates at 2.5% and a possibility of going lower, potential investors will be forced to put money into equities, property or perhaps more esoteric investments just to beat inflation. Now with some solid results behind it, Telstra is likely to perform well in coming months.

Foolish takeaway

This Fool believes that although the S&P/ASX 200 (ASX: XJO) (^AXJO) may be fairly priced by some measures, investors will need to look outside their term deposits to get a decent recent return in the next 12 months. Compared to the banks and miners, Telstra has a healthy (but modest) growth trend, pays comparative dividends and is in the right position to take advantage of long term growth trends in technology and communications. Investors could do worse than add Telstra to their portfolios.

Every Aussie investor knows Telstra, but only the smart money is on the move now… Discover whether our experts think you should buy, sell or hold Telstra shares in our brand-new report, written by a top Motley Fool analyst. It’s free, click here for your instant download!

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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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