Telstra Corporation Ltd (ASX: TLS) seems to be moving into a higher gear as its plans to grow overseas overlap with the strength of its domestic broadband and telecoms business. Here are four reasons why I believe the company would be a steady, growing income stock for your dividend or retirement portfolio.
– Increasing earnings and capital return
Telstra had a 14.6% increase in FY 2014 net profit on top of only a 3.4% rise in revenue. The final dividend was raised to 15 cents per share, making full year dividends 29.5 cps and continuing Telstra's reputation as a rock-solid dividend payer. The stock's dividend yield is 5.2% fully franked.
Due to the excess cash generated by a strong operating performance and proceeds of recent sales like that of its 70% stake in Sensis, the company announced an off-market $1 billion share buyback scheme. This could be an opportunity for new investors to enjoy the higher final dividend and take part in the buyback also.
– Market dominance in broadband and mobile
The company added almost one million new mobile phone subscribers, bringing its total to about 16 million. That puts it well ahead of number two Optus, operated by Singapore Telecommunications Ltd (CHESS) (ASX: SGT), which saw its subscribers fall by 126,000 in the last twelve months. The greater number and larger coverage area keeps Telstra's brand name strong and allows for some premium pricing.
– Overseas expansion
What really is impressive is the level of overseas activity the company is expanding into. It just announced the acquisition of the Silicon Valley-based video technology company Ooyala. This will give it more access to larger digital media markets like the US. It also plans to work with Cisco Systems (NASDAQ: CSCO) to develop a network of cloud computing platforms referred to as a "global intercloud". These are some of the first steps it is taking to become a regional leader of business enterprise services.
– Copper phone network maintenance may bring in steady annual income
Telstra may be turning over ownership of the copper phone network to the National Broadband Network Company, yet it may not go away empty-handed. The annual maintenance costs of the network are estimated to be about $1 billion and Telstra would be the best equipped and experienced company to handle the maintenance.
