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Should you BUY Telstra Corporation Ltd?

Shares in Telstra Corporation Ltd (ASX: TLS) are down in early morning trade following concerns its rate of mobile subscriber growth will slow in coming years. So is it time to buy or sell?

To answer this, it’s important to remember what Telstra really is.

It is Australia’s biggest and best telecommunications company with superior network coverage and reliability. So investors can be assured it’s not likely to lose its customers like Vodafone – owned by Hutchison Telecommunications Australia (ASX: HTA) – did between 2011 and late 2013. Nor is it likely to grow its customer base by more than 50% in a year.

When investors buy into Telstra they’ll be receiving a number of promising and sort after characteristics not usually associated with other shares in the market. Here are three reasons why I think Telstra is a standout long-term buy for investors.

1. Dividends. Telstra’s dividend is second to none. Currently it is forecast to pay a 5.3% distribution with 100% franking. But that’s not what makes it so good. Telstra’s high margin businesses have enabled it to pay a 28 cent fully franked dividend for eight years straight! Consistent dividend payments make investing in the stock market a little bit more comfortable.

2. Margins. As I pointed out above, Telstra is a money making machine. Every time you send an email or download a movie the data will likely run over part of Telstra’s extensive network. For Telstra, the variable cost associated with such a service is very minimal and has enabled some of its businesses to generate EBITDA margins as high as 60% and a return on equity over 30%. By comparison, Wesfarmers Limited (ASX: WES) – owner of Bunnings Warehouse and Coles supermarkets has a return on equity of just 8.7%.

3. Growth. Despite being the biggest fish in our pond, Telstra is rapidly growing in Asia. Its digital media business, which includes a big stake in the Chinese version of carsales.com.au, aptly named Autohome.com.cn, is leading the charge, but partnerships with established telecommunications companies such as Telkom (in Indonesia) is another, perhaps safer, growth strategy for Telstra to pursue. In the first half to 31 December 2013, Telstra’s NAS and International divisions each grew revenues by nearly 30%.

A better buy than Telstra is here

I think Telstra is a great long-term buy and hold investment despite rising over 70% in the past few years. However I think there’s another ASX stock which is an even better buy at current prices.

I know it has HUGE POTENTIAL because our top analysts have worked tirelessly to find it and it has only recently been declared The Motley Fool's #1 stock for 2014Simply click here for your FREE copy of "The Motley Fool's Top Stock for 2014."

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

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