Giant telco Telstra Corporation Ltd (ASX: TLS) has returned shareholders 125% (including dividends) over the past 4 years, since June 30, 2010.
That's nothing to sneeze at, handsomely beating the S&P/ASX 200 Index's (Index:^AXJO) (ASX:XJO) 28% return over the same period.
But it pale's into significance compared to some other telcos' performance. Over the same period, TPG Telecom Limited (ASX: TPM) has delivered a return to shareholders of 249% including dividends, while shareholders in Vocus Communications Limited (ASX: VOC) have seen a whopping 682% return, also including dividends.
But even those outstanding returns are insignificant compared to the performance of My Net Fone Limited (ASX: MNF), which has returned an astonishing 3,052%, including dividends.
The lessons here are several.
- Smaller companies can and tend to outperform larger more dominant companies, as they have more ability to grow earnings.
- Investors may be happy knowing their investment has beaten the index handsomely, but they may not be that happy if they had known they could have seen returns of 3,000% plus.
- While Telstra may be the dominant telco in Australia, because of its size, it has tremendous difficulty growing earnings at a fast rate.
- Owning 'safe' Telstra may limit the returns investors can achieve by looking at smaller, less-widely followed stocks.
An additional lesson is that investors can achieve the best of both worlds, by owning shares in Telstra, as well as a smattering of investments across smaller telecommunications stocks. And that's the approach that I have taken, owning shares in several telcos as well as Telstra.
