If you're looking for a reason to buy Telstra Corporation Ltd (ASX: TLS) shares today, I'll give you three easy ones for free:
1. Dominance
Telstra dominates every market it enters. From its 15 million mobile subscribers to its huge Foxtel customer base and everything in between. It uses its scale to muscle-in on its competition and offer services which are not only discounted but usually more reliable.
2. Dividends
Thanks to its commanding lead in a number of key telecommunications and technology markets, Telstra is able to generate huge profits from proportionately modest revenues. Its return on equity is far greater than what the big banks, such as Commonwealth Bank of Australia (ASX: CBA) can achieve, and its ROE is even higher than Woolworths Ltd's (ASX: WOW) return.
The huge margins enable it to generate strong levels of free cash flow and pay a great dividend yield. One which is likely to grow in the next few years as the company debates over what to do with its huge pile of cash following a number of divestments of smaller assets. At current prices it yields 5.6% fully franked.
3. Diversification
In recent years, Telstra begun responding to the changes in the technology marketplace. It has realised the potential for technology to play a bigger role in both our private and business lives. Leveraging from its successes of the past, Telstra has strategically placed itself in a position which will pose the greatest barriers to entry. By doing so, it has diversified its revenue streams and made it more than just a telco who provides a phone to plug into your wall.
Building upon its already superior nationwide coverage, Telstra's new Network Application Services (NAS) division is growing rapidly as more and more of us use managed networks, cloud computing and general IT services. NAS grew revenues by almost 30% in the first half of FY14.
Similarly, Telstra's International division boosted revenues by 28% to $1.053 billion in the same period. This division is going to be a really important growth area for Telstra in the coming decade. It provides services similar to those offered through NAS but for large global corporations who have widespread and complex network requirements. However, perhaps more importantly, the International division houses Telstra's 65.3% holding in Autohome (NYSE: ATHM) – China's number-one online automotive listing site. Think of Carsales, but for a country well over 50 times bigger than ours population wise.
Foolish takeaway
So there you have it, the 3-D reasons you should consider buying Telstra shares today. Dominance, dividends and diversification is a winning strategy for any business and, potentially, your portfolio.
