A big sustainable dividend payout and an even better business model. What more could an investor ask for?
Perhaps a competitive advantage, growing free cash flow, lower borrowing costs and conservative management. Today ratings agency Fitch confirmed Telstra Corporation Ltd's (ASX: TLS) unique characteristics make it a promising investment, giving it an 'A'/Stable rating.
It noted six key characteristics as important drivers for the rating:
Market-leading position: A big share of the fixed-wire and wireless markets, superior mobile network coverage and reliability and a "material" share of the mobile spectrum.
Sustainable competitive advantage: Free cash flow is superior to rivals enabling it to stay one step ahead in mobile growth rates and charges. Fitch expects no new competitors to enter the market.
Strong profitability: Bundling services have increased in number and enable higher margins in mobile, fixed internet and more.
Low risk from NBN review: Despite fears over the government's review of the NBN, Fitch believes it is unlikely to result in a negative outcome for the company. Even if the agreement between the two is cancelled, Telstra can then resume its fixed broadband offering and would receive payments for renting its infrastructure to the government.
Conservative capital management: Rising free cash flow and management's predisposition towards returning surplus funds to shareholders after crucial activities such as capex and funding requirements. Telstra's prudence in determining payouts is also important.
Lower borrowing costs: As debt falls and matures, Fitch expects the company to continue benefitting from lower variable base rates, reflecting the lower interest rates on offer. This was echoed in the company's recent half-yearly report which showed a 0.3% fall in average interest costs to 6.1%.
Foolish takeaway
What makes Telstra an even more compelling investment than its blue-chip peers is its extremely high margins and growth overseas. A top dividend, safety, and continual growth overseas makes Telstra deserving of a spot in your portfolio or, at least, on your watchlist.
