MENU

Is Telstra Corporation Ltd set to smash though $6?

Investors in Telstra Corporation Ltd (ASX: CBA) may have noted Fairfax Media news outlets yesterday reporting that analysts at the Commonwealth Bank of Australia (ASX: CBA) expect Telstra to incrementally raise its dividend payout until FY18. CBA analysts reportedly expect the telco to raise the dividend 0.5 cent per half year to reach 36 cents by FY18.

This seems a more credible prediction than CBA’s previous prediction that Telstra was “very unlikely” to launch a share buyback in FY15. This prediction made just before Telstra announced one of the biggest share buybacks in its history. The buyback seems to have supported the share price so far into FY15 and more shareholder friendly policies may continue to do so out to FY18.

The dividend increase prediction seems sensible given that Telstra has a giant amount of cash sitting on its balance sheet and apparent lack of worthwhile acquisition opportunities. Overall, the picture seems to suggest today’s fully franked income investors may be getting a good deal.

A payout totalling 31.5 cents in FY15 would put the business on a forward yield of 5.44% when selling for $5.60. However, if Telstra were to payout 36 cents per share come FY18 today’s investors would be locking in a forward yield of 6.42%.

Admittedly that doesn’t sound too flash, but growing and tax effective dividend payouts are likely to support the share price and provide yields to beat the return available on cash equivalents or rental yields from investment properties.

Telstra also has a good growth outlook through its technology and overseas operations and competitive advantages through its reputation of providing the best mobile and internet networks across Australia.

I also expect Telstra will be the a beneficiary of the large-screen iPhone 6 and its descendants as customers continue to migrate to the best mobile network.

Throw in the tailwinds of the digital future and in my opinion Telstra remains a solid bet for income-seeking investors. Those waiting around for a cheaper share price may miss the boat as I expect it to be well supported in the years ahead.

Telstra looks a top pick for income investors but if you're looking for explosive growth you need to find the Telstra of tomorrow, not today!

May I suggest you sit back, relax, and watch this video on The Motley Fool's #1 ASX tech pick...

Attention investors: The Motley Fool has just released a special video report on our analysts' #1 ASX tech pick -- all about the one Australian company poised to win big from the 'cloud computing' trend. (Hint: The shares are already up over 100%!) Click here to claim your FREE copy.

Motley Fool contributor Tom Richardson owns shares in Telstra. You can find him on Twitter @tommyr345

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.