Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW) are stalwarts of the Australian share market.
But which is right for your portfolio today? Let's take a brief look at each to see which is the better buy today.
Telstra
Telstra has deserved its title as one of the best defensive income investments on the ASX. The $69 billion telecommunications heavyweight is a leader in fixed broadband, mobiles, network applications and other legacy services.
At the shareholder level, Telstra's share price has risen an impressive 80% in five years and not once has it lowered its dividend payment. Telstra is expected to pay a 31 cents per share dividend, equivalent to a yield of 5.7% fully franked, in the next 12 months.
The key risks facing Telstra are competition and technological disruption. Usage of internet-based services like instant messaging and VoIP have leapt ahead of voice and SMS in popularity. The shift away from fixed line networks (like the NBN) is already well underway. While Telstra has the premier mobile network now, there's no guarantee it'll retain its leadership position for another decade.
Woolworths
Woolworths knows too well the effect of competition. A resurgent Coles, owned by Wesfarmers Ltd (ASX: WES), and Aldi have upped the ante on Australia's largest groceries business. Unfortunately, Woolworths' attempt to expand into other areas of retailing proved challenging.
Nonetheless, the company has some appealing characteristics. For example, in the year ahead, Woolworths' shareholders are expected to receive a cash payment equivalent to 4% fully franked.
Given its decision to divest Masters and Home Timber and Hardware, and the loss expected from Big W, Woolworths' profit growth now relies solely on the supermarkets business. Unfortunately, with grocery margins expected to narrow, shareholders may be in for a rocky ride.
Better buy: Telstra or Woolworths?
Telstra shares appear to trade at a premium valuation to the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), while Woolworths' shares are cheaper. So it appears to be a classical case of 'you pay for what you get'.
However, while Telstra shares seem to be a better long-term investment, it's not a buy above $5, in my opinion. Its shares would have to drop meaningfully below $5 to be a standout buy.
