Telstra Corporation's (ASX: TLS) fixed line business is in terminal decline. Its competitive advantage in the mobile space — coverage — is eroding as Optus and Vodafone erect more towers, and Telstra have more outages. And the broadband market is incredibly competitive, with companies like TPG Telecom Ltd (ASX: TPM) gobbling up market share.
So it was no surprise to me when Telstra recently reported a fall in both revenue and profit, and downgraded its forecast for the 2017 year ahead.
Like many Australian investors, I still own Telstra shares. In this low interest rate environment, the fully franked dividend has been just too good for me to pass up.
On a pure yield basis, now the Telstra share price has fallen back to below $5, they offer a 6.4% fully franked dividend yield, which grosses up to around 9%.
Fantastic.
The only problem, of course, is what you make in the dividend, you're losing on the capital. The Telstra share price has fallen almost 8% in the past 12 months.
And there's another potential problem, one that could seriously torpedo the Telstra share price…
Telstra is currently paying out more in dividends than it's making in profits.
That is clearly an unsustainable situation. Something has to give. Maybe not in the next six months. Or even the next year. But eventually, either Telstra's profits rise or the Telstra dividend gets cut.
With a dividend cut on the radar, and a company not only in decline, but also in transformation, I'm not hanging around to see what happens to the Telstra share price.
If the Telstra dividend did get cut, all hell could break loose.
Making my decision MUCH easier is that I've found what could be the perfect substitute for my Telstra shares.
Unlike the popular telco, this "fortress" company is not only growing its earnings, it has just increased its dividend by a stunning 22%.
Andrew Page, our resident dividend expert, has recently named the stock as his top ASX dividend stock to buy now. Not only is he expecting the share price to rise nicely higher, you'll also get paid a 5% dividend yield for the privilege.
You can find out the name of this "fortress" ASX stock the instant you subscribe to our very popular Motley Fool Dividend Investor advisory service. I've even gone ahead and knocked 50% off my already low price. Click here to check it out.
I know what you're thinking…
There's a stock market crash just around the corner, and buying dividend stocks now is madness.
I'll tell what madness is…
Madness is waiting for the next stock market crash.
Even billionaire investor Warren Buffett calls it a "terrible mistake," saying in a recent CNBC interview…
"You want to spread the risk as far as the specific companies you're in by owning a diversified group, and you diversify over time by buying this month, next month, the year after, the year after, the year after. But you are making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it."
And as for whether the stock market is overvalued, Buffett said in the same CNBC interview…
"We are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But measured against interest rates, stocks actually are on the cheap side compared to historic valuations."
Here in Australia, respected pundits like Richard Coppleson at Bell Potter are saying the ASX will end the year at 6,300.
And interest rates set to stay around these low levels for what could be years to come…
Whichever way you look at it, the odds of investing success look to be heavily in your favour.
To be clear, I'm not suggesting you go "all in" on dividend stocks right now.
What I am saying is you could take a leaf out of Warren Buffett's book, buying into a diversified group of dividend stocks over time…
Starting with the "fortress" stock Andrew Page just named as his top ASX dividend stock to buy now.
It all starts by joining thousands of your fellow Motley Fool readers as a subscriber to Motley Fool Dividend Investor.
Not only will you find out the name of the "fortress" ASX stock (and its 5% dividend yield), but you'll get instant access to the two other ASX dividend stocks Andrew Page recently named as his "Best Buys Now."
But you will have to act now. I've knocked 50% off one year subscriptions to Motley Fool Dividend Investor, a deal that could be removed without notice.
You can get started by clicking here right now. Take 30 days to test drive the service, and if you're not entirely satisfied, we'll refund your entire subscription fee, no questions asked.
