Telstra is once again a market darling as economic carnage damages mining and other stocks.
Its shares are at their highest level since 2001, back when the Federal Government still held a majority stake. But why?
A safe investment
Telstra is not exposed to the current downturn in commodities and economic slowdown, so some of the cash dropping out of other stocks is heading its way.
“We are comparing chalk and cheese when we stack it up against resources, in particular the energy stocks at the moment,” OptionsXpress market analyst Ben Le Brun said.
“A lot of money outflows from those sectors is probably finding its way into Telstra, in particular money that would otherwise have been diverted into financials if not for the clouds of uncertainty.”
Dividends are king
Telstra has a proven track record of growth, said IG market strategist Evan Lucas, with chief executive David Thodey’s six-year reign viewed favourably.
Half year earnings might not jump next month, but its dividend of about 15 cents a share can be relied upon.
Investors will seek out high yield stocks such as Telstra until confidence in the economy returns, Mr Lucas said.
“It will be a key standout this coming earnings season: if you have got dividend growth, return of capital to shareholders, you’re going to win,” he said.
Is Telstra now a better company?
The consensus appears to be YES.
In its darkest days there were doubts it would prosper as Australians stopped using landline phones, while its reputation suffered during a war with the federal government over the National Broadband Network and its relationship with competitors.
Ross Barker, the managing director of Telstra shareholder Australian Foundation Investment Company, says he is now reassured there are profits to be made after the NBN’s rollout.
“What they have done in the mobile business has been fantastic, providing a network to customers streaks ahead of the rest,” Barker said.
“They have got the capital resources to invest in growth in the enormous change in the telecommunications industry: the huge proliferation of wireless telephony, tablets, iPhones.”
What does it mean for shareholders?
Participants in the T1 or T3 floats paid $3.30 and $3.60 a share and are therefore ahead. But T2 shareholders, who paid $7.40, remain behind.
Bell Potter wholesale stockbroker Charlie Aitken has said Telstra shares should be around $7.
“They have a yield more attractive than the Aussie 10 year bond yield which is heading south,” Lucas said.
“However it has been a meteoric run that won’t last forever, but that market sees growth as a risk at the moment and that is why it is such a darling.”
– AAP
