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Telstra tipped to pay the biggest returns to shareholders in 2020

The ASX large cap with the biggest potential pay-off in 2020 is the Telstra Corporation Ltd (ASX: TLS) share price, if Morgans forecast is on the money.

The broker made a list of stocks under its coverage that can generate the best total return (capital gain plus dividend) over the next 12-months and Australia’s largest telco is the king of the hill.

The news didn’t help the stock today though. The Telstra share price dipped 0.4% to $3.50 as we enter into the last hour of trade.

Falling interest rates good for Telstra

In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index inched up 0.2% on the eve of the Melbourne Cup while Telstra’s peers put in a mixed performance. The Vocus Group Ltd (ASX: VOC) share price gained 1% to $3.40 but the TPG Telecom Ltd (ASX: TPM) share price slid 0.5% to $6.52.

You can’t blame investors for sitting on their hands as the start of the Spring racing carnival is luring many away traders and investors away from their screen – particularly ahead of tomorrow’s interest rate decision by the RBA.

Economists aren’t expecting a rate cut but they are tipping one for February – and that could increase the appeal of dividend paying stocks like Telstra.

TPG-Vodafone gives Telstra extra lift

But Morgans thinks there is another reason to buy share in the telco, and that’s the upcoming court decision on the merger of TPG and Vodafone Australia. The competition watchdog is blocking the marriage and TPG and Vodafone are trying to get the court to overturn that decision.

“Our view on TLS is predicated on improving market sentiment. The merger or not of TPM and Vodafone is the key catalyst for this and perversely we view either outcome as a positive in the short term,” said the broker.

“Either they merge and the market becomes more rational or they don’t merge and TPM is unable, at least for a while, to build a competing mobile network as they’ve told the high court of Australia they will not.”

Morgans put a price target of $4.46 a share on Telstra, which means the stock can produce a 32% return over the next 12-months if dividends are included.

Other ASX large caps with big returns

Another large cap with big upside is the Oil Search Limited (ASX: OSH) share price, added the broker. The oil and gas producer has the potential to return around 23% over the period, based on Morgans estimates.

“We like OSH for its robust profitability and its interests in globally competitive LNG operations,” said the broker.

“The PNG political risk has moderated with the government confirming it would honour the existing Papua Gas Agreement (while a discount for the recent government changes is still evident in OSH’s share price).”

In third spot is alcoholic beverages group Treasury Wine Estates Ltd (ASX: TWE). Morgans believes there is a 21% total return waiting for shareholders this time next year due to its earnings visibility and long runway of growth from its luxury labels.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Telstra Limited and Treasury Wine Estates Limited. 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 Scott Phillips.

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