Shares in Telstra Corporation Ltd (ASX: TLS) have performed exceptionally well in the past three years. If you included dividends, your total shareholder return would be near 100% – a heck of a performance by all investors’ standards. It has far outperformed other popular blue chips such as BHP Billiton Limited (ASX: BHP), Woolworths Limited (ASX: WOW) and the broader S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO).
So now, justifiably, some of you who bought Telstra shares in recent years would seriously be considering selling to pocket a tidy profit. And fair enough, you deserve the rewards. But my question to you is: What would you do with the money?
From personal experience I know how tempting it can be to sell a blue-chip stock when it has performed exceptionally well. I bought Telstra shares in 2012 and sold in 2013 for a “tidy” profit only to watch them rise a further 50 cents and pay another 42 cents in fully franked dividends. Meanwhile I, undesirably, copped capital gains tax on all my gains.
The lesson I’ve taken away from this is quite simple. If you don’t need the money and you’ve found yourself a growing stock which pays out handsome dividends, why sell? Even if Telstra shares fell by 30% this week, it’d still be above the amount I sold my shares for, once you include dividends paid and my capital gains tax liability.
But if you’re still concerned, consider what Telstra has to offer…
Even at current prices it has the hallmarks of a great buy and hold investment because it has the best return on equity of any Australian blue-chip stock (with a market capitalisation greater than $35 billion), and the third-highest dividend yield. What’s more, it has a number of promising growth strategies, rising cash flows and very strong macroeconomic tailwinds.
Although it dominates the local mobile, fixed internet and pay-tv markets, Telstra’s International and Network Application Services divisions continue to grow rapidly, providing the possibility of long-term earnings per share growth.
Telstra: Buy, hold or sell?
If you already hold Telstra shares, I feel there’s good reason to keep holding them, especially given that the returns offered from term deposits and savings accounts are very poor. In addition for would-be long-term investors, there could be value to be had at Telstra’s current price, with the likelihood of greater earnings and dividends in coming years.