2 big reasons to hold Telstra Corporation Ltd

Telstra Corporation Ltd’s (ASX:TLS) focus on returns and promising long-term growth strategy put it in good stead for greater shareholder returns.

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If you’re looking to beat low interest rates by investing in the ‘usual suspects’ like the big four banks and two supermarket giants, it appears you’ve missed the boat.

However there is one S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) stock which stands above the rest for safety, dividends and long-term growth.

Unlike some other blue-chips Telstra Corporation Ltd (ASX: TLS) is a top dividend stock which has the potential to continue growing shareholder returns for many years to come. Here are two big reasons why I think it’s worth holding onto throughout the next market cycle.

  1. Focus on returns

Telstra’s leadership consider their shareholder returns on a bi-annual basis. That means they regularly check-in on how the business is doing in terms of balance sheet flexibility and returning surplus funds to shareholders. Although Telstra’s annual revenues have been muted around $25 billion for five years, Telstra has a huge cash pile – a result of its enviable profit margins and recent divestments – which analysts believe will help the company raise its cash return to 30 cents per share fully franked in 2015.

  1. Long-term strategy

Telstra is a long-term stock. It should be considered a ‘core’ holding in an investor’s portfolio. However it isn’t devoid of growth potential, and shareholders should expect modest earnings increases, with few surprises, over the medium to long term. The sale of its copper cables to the government’s NBN Co will free up cash for its strategy in Asia to buy infrastructure and form joint venture partnerships. Whilst locally its Network Application Services (NAS) division – housing services such as unified communications and cloud computing – is growing strongly.

Despite its good performance over the past few years however, NAS is still in its infancy. But as more and more individuals, businesses and corporations begin to realise the benefits of cloud computing and managed networks, more customers will seek out its superior services. In this respect Telstra’s superior network and bundling strategies will likely keep it ahead of rival, Optus, – owned by Singapore Telecommunications Ltd (CHESS) (ASX: SGT) – and enable it to continue increasing market share.

Foolish takeaway

Telstra shareholders can rest easy knowing their business is in good hands with a long but steady runway for increasing earnings. In the near term increased dividends are likely.

However at today’s current market price, Telstra shares do not appear great value for buyers. So investors are encouraged to keep it on their watchlist until we’re afforded a more compelling buying opportunity.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. You can follow Owen on Twitter @ASXinvest.

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