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Telstra shares : The road to $6… and beyond

In this era of ultra low interest rates, more than ever investors are chasing dividend paying stocks.

Today’s dividend stock poster child is Telstra (ASX: TLS).

Last week, Telstra announced final results, turning 1.1% top line growth into an impressive 12.9% increase in bottom line profits. The company maintained its fully franked final dividend of 14 cents, making the full year payout 28 cents.

With Telstra’s shares around $5.10, they currently yield 5.5%. Grossed up for franking credits, the yield is 7.8%. Put that in your term deposit and smoke it.

Telstra isn’t going to deliver double-digit top-line growth any time soon, but the company is well run, has some strong tailwinds and the possibility of an increased dividend underpins the share price.

If, for example, Telstra was to increase its dividend to 30 cents, it would yield 5.9%, likely seeing the growing SMSF army further pile into what is already the most widely owned stock in the All Ordinaries Index (INDEXASX:XAO).

Telstra at $6 paying a 30 cents dividend would yield 5%, fully franked, a return still far ahead of that available by leaving your money in the bank.

Year to date, Telstra shares are up 17%, comparing favourably to fellow popular large cap dividend payers Woolworths (ASX: WOW) and Wesfarmers (ASX: WES), up 12.5% and 10.9% respectively.

The dominant telco’s 2013 gains may not yet be done.

Could this fully franked dividend paying stock be an even better bet than Telstra?

Telstra’s dividend yield is attractive, but there are plenty more fish in the sea. If you are looking for more fully franked dividend paying stocks, check out “The Motley Fool’s Top Dividend Stock for 2013-2014.” In this special free report, find out the name, ASX symbol and full investment case for this top dividend paying stock. Click here now for instant free access.

Of the companies mentioned above, Bruce Jackson has an interest in Telstra, Woolworths and Wesfarmers.

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