With its share price up over 73% from $3.09 to $5.35 in the last five years and dividends paid equivalent to 45% of its share price five years ago, it’s no wonder why Telstra Corporation Ltd (ASX: TLS) is at the top of all investors’ watchlists.
However with increasing free cash flows and exciting new growth prospects, it appears investors can expect more of the same. Here are five reasons why Telstra is a great 10-year investment.
1. Telstra dominates the local telecommunications market. With key infrastructure left over from its former government self, Telstra has built a network which is both reliable and the envy of its competitors. Its brand name and reputation have allowed it to control the lion’s share of both the fixed internet and mobile markets. Something which is unlikely to change in the next 10 years.
2. Thanks to its scale, Telstra has huge profit margins, making it a safe and reliable business for any type of investor. For example, its mobile division has an EBITDA margin of nearly 40% whilst the Data & IP division takes it as high as 65%!
3. A big customer base and profit margins allow the telco to generate enormous cash flows. With the recent divestments of both its Hong Kong mobiles business, CSL, and a stake in Sensis, analysts are forecasting total cash at around $7 billion for 2014.
4. With reliable cash flows, many investors have come to love Telstra for its dividends. With a slight increase to its interim payout earlier in the year, long-term investors recently embraced the first increase to its dividend payment in over eight years. While many analysts are forecasting a 29 cent full-year payout, it could well increase again in the near future.
5. In recent years, Telstra’s senior management have been focusing their attention on Asia. From a partnership with Telkom of Indonesia to the IPO of its Autohome.com.cn business on the NASDAQ, Telstra’s management have made it clear they see significant opportunities emerging in the region. In the most recent half year, Telstra’s International business grew revenue by nearly 30%.