Could Telstra Corporation Ltd reach $6 per share in 2014?

In the past five years Telstra Corporation Ltd (ASX: TLS) shares have increased a whopping 60%, not including dividends. As interest rates fell, Telstra’s share price was the beneficiary of investors fleeing from the poor returns offered by term deposits and savings accounts.

However until very recently, its shares had seemingly grinded to a halt around $5.05, which was perhaps a chance for shareholders to take profits and assess their alternatives. But it appears investors are back in force, with shares today trading above $5.20.

So can the upward trend continue?

It appears it can. Although it’ll likely be more modest than what we’ve experienced in recent years because there are no major macroeconomic catalysts driving up demand for high dividend yielding stocks, such as those which we experienced in 2012/2013.

However, at the company level, Telstra is in a period of transition whereby it is becoming a more agile telecommunications company. It is ridding itself of its poorly performing assets like Sensis and focusing on its high-margin businesses whilst also pursuing an overseas expansion.

It’s mobile, fixed data and fixed line businesses provide the perfect platform for it to grow the rapidly expanding Network Application Services (NAS) and International divisions. Both of which, notched up revenue growth near 30% in the first-half of FY14, taking their combined contribution to around 15% of group revenues. These divisions will drive up earnings in the next five years, and could be the reason why shares reach $6.00 in the near future.

In addition, ongoing payments from the government’s NBN Co and the likelihood of increased dividends will support a higher share price in case of an economic downturn.

Foolish takeaway

Personally, at current prices, I’d prefer to add Telstra to my portfolio before the two supermarket giants Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW), and well before the big banks. I believe it’ll reach $6 per share in time (whether it does so next month or next year is anyone’s guess), because demand for its services is increasing rapidly and it also pays a growing 5.5% fully franked dividend.

Get our top dividend stock for 2014 - FREE!

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.