If you're looking to beat low interest rates with high-yielding dividends, it might appear you've already missed the boat. Blue-chip dividend stocks like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) appear to have already run their race, rising 52% and 41% respectively in the past two years, but only 6% and 9% in the past 12 months.
It seems they've definitely ran their race. But are there any other blue-chips which hold long-term value for shareholders?
Telstra Corporation Ltd (ASX: TLS) is a top dividend stock which will continue to grow revenues and earnings in the long-term despite climbing over 50% in the past two years. Here are two big reasons why:
1. Focus on returns
Telstra's leadership consider dividend returns on a bi-annual basis. That means they regularly check-in on how the business is doing in terms of balance sheet flexibility and returning surplus funds to shareholders. Although Telstra's annual revenues have been muted around $25 billion for five years, three factors have changed; the Australian interest rate environment, long-term debt has dropped from its peak in 2009, and free cash flow is growing.
A bi-annual review of shareholder returns coupled with increasing balance sheet flexibility make the prospect of increased returns, in the form of a dividend, more likely. I expect the full-year payout to total 29 cents per share. In-line with a majority of analysts' forecasts.
2. Long-term strategy
Telstra is a long-term stock. It should be considered a 'core' addition to portfolios and shareholders should expect modest earnings growth, with little surprises. What will drive Telstra's long-term strategy is its focus on Asia – including its assets in China and Indonesia – as well as growth in sales stemming from its Network Application Services (NAS) division. In its most recent half-year report the International and NAS business divisions grew revenues by 28.3% to $1.083 billion and 29.3% to $821 million respectively.
However NAS – which includes unified communications, cloud computing and managed networks – is still in its infancy. As more and more individual Australians, businesses and corporations begin to utilise the services of cloud computing through mobile devices, lightweight tablets and business networks, data usage will increase dramatically further complementing the companies mobile and data businesses. In this respect Telstra's superior network and bundling strategies will trump that of its closest rival, Optus, – owned by Singapore Telecommunications Ltd (ASX: SGT) – and enable Telstra to continue increasing its market share.
Foolish takeaway
Telstra shareholders can rest easy knowing the business is in good hands with a long but steady runway for increasing earnings. In the near term increased dividends are likely, particularly once the government releases its ambitions for the national broadband network and Telstra's responsibility to it. However, it's unlikely to adversely affect our biggest telco or its shareholders.
