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Telstra Corporation Ltd v Crown Resorts Ltd: Which should you buy?

Telstra Corporation Ltd (ASX: TLS) and Crown Resorts Ltd (ASX: CWN) have both enjoyed share price rises since announcing their profit results on Thursday. Crown rallied 5.6% to $15.66, while Telstra added 2.2% to $5.56. The moves left Telstra trading at a new 52-week high and registering a gain of 9.5% for the past 12 months. In comparison Crown is trading midway between its 52-week high and low and has produced a gain of 18% over the last year.

Solid Results

Giants in their respective industries of telecommunications and casinos, both companies reported pleasing profit results.

Telstra’s profit came in well above expectations at $4.3 billion, a gain of 14.3% on the prior year. Free cash flow was even more outstanding, gaining 50% to $7.5 billion. Meanwhile the closely watched dividend grew from 28 cents per share (cps) in FY 2013 to 29.5 cps in FY 2014. Looking forward management provided an outlook for low-single digit earnings growth in FY 2015.

Over at Crown it looks like shareholders have hit the jackpot thanks to impressive growth in Crown’s Macau venue with the group reporting a 35% leap in normalised profit to $640 million. The board declared a final dividend of 19 cps which took the total dividend to 37 cps for the year– of course investors aren’t buying Crown for its yield.

The better buy

The raised dividend and capital return which will see a flood of franking credits returned to shareholders will no doubt appeal to many Telstra investors. Indeed depending on your investment goals, it could be worth taking advantage of Telstra’s reputation as one of the ASX’s premier high-income plays. Over the long term it also has growth potential, but don’t expect it to shoot the lights out!

To my mind Crown looks the better buy at present, although there is a big proviso. Crown will have spent over $2.8 billion in capital expenditure by FY 2017 (since FY 2010) on projects in Melbourne and Perth alone. With the potential for huge expenses in Sydney, Brisbane and Las Vegas there is need for caution.

Naturally this expenditure should boost revenues and earnings, however what really matters to shareholders is the return on investment which Crown achieves. This will need to be watched closely as projects such as these do run the risk of destroying rather than creating shareholder value. Although Crown certainly looks an interesting proposition for those prepared to take on a slightly higher risk level for potentially high returns.

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