Is Telstra trading at a discount?

Long-term investors shouldn’t ignore this stock for too long.

Some investors are thinking the dividend rush is over — and why wouldn’t they? Many of the country’s biggest names, including Commonwealth Bank (ASX: CBA), Woolworths (ASX: WOW) and Macquarie (ASX: MQG), pay great dividends and have risen spectacularly over the past year. Whilst these blue chips remain very highly valued, there is one blue chip that pays a great dividend and has evaded investors’ portfolio this past month.

Source: Google Finance

Telstra (ASX: TLS) shareholders seem to have disconnected from the stock over the past month, possibly because of the uncertainty surrounding its ability to draw in new customers and revenues as quick as it has in the past three years.

Investors might be seeing Telstra’s revenue growth thinning in coming years because of the hazy transition the industry faces in regards to NBN and mobile growth. Although it is regularly compared to the big banks or retailers, Telstra is unique. The company has a dominant position in its market — an industry that is booming — and rather than regulating its capital requirements or the way it marks down prices, the government is handing money back to Telstra for disconnection payments for the NBN. In addition its mobile business is entering a new, but still exciting phase of growth.

Hallmarks of a core stock

Modest revenue growth, high dividends, good liquidity position, sensible management and brand recognition are all things that good hand in hand with a core stock. Telstra excels in all areas.

Investors looking at Telstra for rapid capital gains growth may be disappointed, but investors looking to secure their wealth, have a regular income stream (which will likely grow) and who have faith in the long-term prospects of the telecommunications and technology sectors should consider adding Telstra to their portfolios.

Highlights from Telstra’s most recent full year included 16.2% and 17.7% increase in its international and National Applications Services divisions, respectively. These are both small parts of the overall company but provide room for growth going forward. CEO David Thodey said, “Our strategy around improving customer service, as well as focusing on our growth businesses, is working”.

Foolish takeaway

Telstra shares have been rising consistently over the past week as investors seek long-term financial security in the current low interest rate environment. Telstra is a solid long-term core stock for investors that find value in a stable 5.8% fully franked dividend yield, reduced volatility (beta rating of around 0.5) and a reliable and dominant business model.

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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