Buy Telstra (ASX:TLS) shares instead of term deposits

The Telstra Corporation Ltd (ASX:TLS) dividend offers a vastly superior yield to term deposits. Here’s what you need to know…

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At present, a 24-month term deposit from Australia and New Zealand Banking GrpLtd (ASX: ANZ) will provide investors with an interest rate of just 0.3%. This is broadly in line with what the rest of the banks are offering.

This means that a $100,000 investment would yield just $300 of interest each year.

Luckily, income investors don’t have to settle for that and there are a good number of shares offering vastly superior yields.

One of those is telco giant Telstra Corporation Ltd (ASX: TLS).

Why Telstra?

Telstra has been a big disappointment for income investors in recent years.

The NBN rollout created a significant gap in its earnings and led to a series of dividend cuts by the Telstra board.

The good news is that these cuts now appear to be over and a return to growth could be on the horizon soon.

This follows comments by the Telstra board at its annual general meeting which revealed that it would consider adjusting its dividend policy to maintain its 16 cents per share payout.

In addition to this, the company has recently announced plans to split its business into three separate entities. Management believes the restructure will allow Telstra to take advantage of potential monetisation opportunities for its infrastructure assets, which could create additional value for shareholders.

He commented: “The proposed restructure is one of the most significant in Telstra’s history and the largest corporate change since privatisation. It will unlock value in the company, improve the returns from the company’s assets and create further optionality for the future.”

Combined with the arrival of 5G, rational competition in the telco market, and its rampant cost cutting, things are looking a whole lot rosier for Telstra now.

Buy rating.

One broker that is a fan is Goldman Sachs. In response to its big shakeup, the broker reiterated its buy rating and $3.60 price target on the company’s shares.

It has also reaffirmed its forecast for a 16 cents per share fully franked dividend in FY 2021 and beyond. Based on the current Telstra share price, this represents a fully franked 5.3% dividend yield.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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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