Revealed: One blue-chip share I think is a must buy for your SMSF today

Following last week’s announcement by TPG Telecom Ltd (ASX: TPM) that it has acquired a 700MhZ spectrum licence to build its own telecommunications network to compete against Hutchinson Telecommunications (Aus) Ltd (ASX: HTA) (aka Vodafone), Optus and Telstra Corporation Ltd (ASX: TLS), listed telecommunications stocks went into a frenzy of panic selling.

Telstra hit fresh four-year lows as investors feared a fourth entrant into the telecommunications market is likely to increase competition and erode market share of the incumbents.

Whilst the story is yet to play out, a few friends of mine asked if the vicious sell-off in Telstra’s share price made it a good time to buy more shares for their SMSF.

Although I do believe that Telstra remains a stock which all Australians should own, I believe the better buy for most SMSFs today is SEEK Limited (ASX: SEK). Here’s why.


I’m not saying that Telstra must be avoided at all costs. In fact, the truth is far from it.

Although TPG’s foray into the network carrier market is likely to impact all industry players equally, Telstra remains the market leader with the lion’s share of customers. I believe TPG’s entrance isn’t going to change this fact (materially) any time soon. Accordingly, Telstra is still a buy for long-term investors in my opinion.

Nevertheless, for investors like myself who already have substantial holdings in Telstra, I believe Telstra’s future risks don’t warrant adding to current shareholdings. This is because, apart from the telco’s NBN royalty payments, underlying earnings are flat lining and low margin products (like mobile) are replacing high margin fixed-line revenues at a rate of knots. This implies that Telstra’s dividend and growth potential is likely to plateau going forward.

This is why I believe investors looking for the next dividend darling for their super fund should turn their attention to SEEK.

About SEEK

Unlike Telstra, SEEK is growing rapidly with its international businesses outstripping Australian growth rates.

For the half-year ended 31 December 2016, SEEK reported underlying net profit after tax (NPAT) grew 11% and reiterated that it’s on track to meet the upper end of NPAT guidance. Driving the positive news was 23% growth in its international revenues thanks to SEEK’s investment in China’s leading jobs portal Zhaopin, which extended its market-leading position.

Pleasingly, Australian revenues also grew 13% bolstered by sustained reinvestment and product innovation across the business. These factors have resulted in SEEK’s share price surging 10% since the start of the year.

Despite this, the company currently trades on a trailing dividend yield of about 3%, fully-franked. Although this is a fair way away from Telstra coveted 7.5% yield, long-term investors are likely to be rewarded with both capital and dividend growth many times over if the business continues current growth rates.

Foolish takeaway

Though investors with small shareholdings may take the pull-back in Telstra’s share price as an opportune time to add to it, given the mature industry it operates in, I believe investors should limit their holdings to no more than a market-weight position in Australia’s largest telco.

Instead, I believe a better long-term buy for your SMSF is SEEK Limited. With SEEK’s business strategy offering patient investors solid prospects of capital and dividend growth, I regard this stock as a future dividend darling fit for any SMSF.

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Motley Fool contributor Rachit Dudhwala owns shares of Telstra Limited. 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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