Are these the ASX’s best telco stocks?

Australia’s telco stocks have proven to be extremely rewarding investments for those of us who choose to buy and hold. They are the engine room of the technology industry yet come without the hype and, generally, the high share prices.

With enviable margins, strong cash flows and a bright future ahead, now could be the opportune time to increase your exposure to the sector. Here are three stocks which will help.

1. Telstra Corporation Ltd (ASX: TLS) is a great blue-chip stock because it pays a generous 5.5% dividend and has a number of promising growth areas. For example, its International and Network Application Services (NAS) divisions continue to grow strongly. The international division in particular is set to become a cornerstone in CEO David Thodey’s Asian strategy which he hopes will produce a third of the telco’s revenues by 2020. With a sound base in Australia from which it’ll leverage its growth, now could be a great time to position your portfolio to benefit from its expansion.

2. M2 Group Limited (ASX: MTU) would be my choice for value in the sector, at under $6.00 per share it trades on a forecast P/E ratio of 12 and dividend yield of 3.8% fully franked. With a number of synergies set to be recognised from the integration of the Dodo, Eftel, Primus and Commander acquisitions, analysts are expecting a healthy jump in earnings per share over coming years. In addition, its management has not ruled out growing the business into an all-round services provider and has begun a strong push into household energy and gas.

3. Vocus Communications Limited (ASX: VOC) is a telecommunications infrastructure owner with world class assets. This enables it to have a wide “moat” around its operations. It provides underwater cabling around Australia from Asia and the United States, in addition it has an extensive fibre optic network throughout Australia which provides high speeds, availability, and reliability to customers. Its earnings are forecast to grow strongly in coming years.

The BEST buy of all

These three companies offer excellent exposure to an industry which puts significant tailwinds at their back. I would be happy owning all three.

However, currently I don't hold any of these stocks in my portfolio because I'm busy adding stocks which the market doesn't yet know about. I want stocks with big dividend yields and even better growth prospects. Recently, the top Motley Fool analyst gave one ASX stock his tick of approval and I'm strongly considering buying it! "The Motley Fool Top dividend stock for 2014-2015" has a 7% grossed-up dividend yield but, perhaps best of all, you can get its name and code for FREE! Just click here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

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

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