Where to from here for the Telstra share price?

Shares of Telstra Corporation Ltd (ASX: TLS) traded for more than $6.70 early in 2015, before slipping below $5 in March this year.

While they have since managed to rebound, trading for almost $5.80 a share, investors will wonder whether this upwards trend can continue. And if it can, are the shares worth buying?

Familiar to most, Telstra Corporation is Australia’s leading telecommunications provider. It enjoys a reliable and growing customer base, largely thanks to the high-quality nature of its mobile network, from which it reaps much of its income as well as strong operating cash flows.

These cash flows also allow Telstra to offer what is widely considered to be one of the best dividends on the ASX. Fully franked, each share comes with a 30.5 cent dividend attached, which equates to a yield of around 5.3%, or 7.6% grossed up.

In an environment where interest rates are sitting at less than 2%, it’s not difficult to see why investors have fallen in love with Telstra’s shares.

Given that an official interest rate hike is considered highly unlikely to occur anytime soon, the hunt for yield will likely continue – particularly if the Reserve Bank of Australia decides to cut interest rates even lower at any of its upcoming meetings.

But Telstra has more going for it than just its dividend. Consumers, businesses and governments around the world are growing increasingly reliant on mobile and data services and Telstra is in a box-seat to benefit, particularly in Australia and in Asia, where it is expanding.

Of course, investors do need to consider Telstra’s size. Boasting a market value in excess of $70.4 billion, Telstra is the fourth largest stock on the ASX which does limit its growth potential somewhat.

Still, the company can generate steady growth and expand into new areas including eHealth and its Asian operations. These could help generate greater income, leading to a steady increase in dividends, over time.

Telstra has had some issues recently which investors also need to consider. To begin with, the strength and reliability of its network has been questioned as a result of numerous outages of late, which could impact customer churn if the issues persist.

There’s also the risk of its products and services becoming redundant to new technologies, and the risk of it losing market share to businesses such as Optus, TPG Telecom Ltd (ASX: TPM) and Vocus Communications Limited (ASX: VOC).

That said, there are risks associated with every share market investment. While Telstra mightn’t be an appropriate stock for investors looking for edge-of-the-seat excitement or incredible growth rates, it could be a nice fit for long-term investors looking to bolster their income streams.

While they mightn’t be a bargain at $5.77, Telstra’s shares do appear to be reasonably priced. It’s impossible to tell where the shares will go in the near-term, but the shares could rise steadily for those investors over the coming years.

Why These 3 Blue Chip Shares Are Set to Soar

Discover The Motley Fool's Top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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.

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.