Since the beginning of 2014, shares in the big dividend payer, Telstra Corporation Ltd (ASX: TLS), are up 3% and have again started the week trading higher. They are, once again, approaching prices not seen since June 2002.
So why are investors stuffing their portfolio with shares in our largest telco and does it deserve a place in yours?
There are many reasons why Telstra shares are climbing higher but perhaps the most important reason is the telco's fully franked dividend yield. In the current low interest rate environment, Telstra, the big banks and any stock with a consistent dividend are on the receiving end of new money entering the market.
In addition to its 5.3% dividend yield, as a household name which people know and trust, Telstra's 12.44 billion shares find their way into many Australian and international investors' portfolios because of their relative safety, which is afforded to them as a result of the company's dominant position in the domestic telecommunications market.
However, as savvy investors know, no stock is a buy at any price.
Although the company is expected to undertake some form of capital management (share buyback, increased or special dividend etc.), I believe Telstra shares are fully valued at current prices.
That is, despite the likelihood of it reporting high single digit earnings growth later this week and a long-term expansion into Asian markets, I believe it is not a buy at today's prices. I believe a fair price to pay (for long-term investors) is between $4.70 and $5.30. At those prices it would be a good buy, but not great.
A better dividend stock idea than Telstra – Yours Free!
I believe Telstra will report solid full-year results on Thursday (including a 14.5 cent dividend per share). However, unless it can significantly beat analysts' expectations, I believe its shares are fully valued. But with over 2,000 companies listed on the ASX, there are plenty of other dividend stocks for you to consider buying today.
