Should I buy Telstra Corporation Ltd shares?

Credit: Telstra

Should I buy Telstra Corporation Ltd (ASX: TLS) shares?

In today’s economy, buying Telstra Corporation Ltd shares for your portfolio probably seems like a good idea.

After all, interest rates are low. And they could go even lower if the Australian dollar (A$) keeps rising against the US dollar ($), because the RBA knows Australia’s economy needs a lower exchange rate to remain globally competitive.

For the individual Aussie investor, who has money parked in an individual bank account or SMSF, it means the poor returns from cash investments will be here to stay.

With term deposits currently offering just 2% to 2.5% per year, it’s tough going. Especially, if you consider tax and inflation (1.7%) are eating away at those returns.

Is Telstra Corporation Ltd a buy?

That’s where Telstra Corporation Ltd shares usually come in. Historically, many investors turned to the likes of Telstra, the four big banks, Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW) for their generous dividends and relative safety.

Indeed, Telstra Corporation Ltd shares are expected to yield an impressive 5.9% fully franked in the next year. Grossed up for the tax-effective franking credits the yield blows out to an impressive 8.4%. You won’t get that from the bank!

But with great return comes great risk, right?

I don’t subscribe to that belief, and I wouldn’t call Telstra Corporation Ltd a high-risk investment by any means. However, shares are riskier than other forms of investment, like cash and bonds, because the risk of capital loss is ever-present. That’s if you let your emotions control your investing.

But even if we could say Telstra Corporation Ltd shares offer good value, there’s nothing to say the share won’t drop today or tomorrow.

Foolish takeaway

At today’s price of $5.26, I think Telstra Corporation Ltd shares are decent value for dividend-hungry investors. However, there are considerable risks facing the telecommunications behemoth over the next five years. Therefore, I’d like to see a lower price before hitting the buy button on Telstra shares.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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