Telstra to pay higher dividends?

Higher dividends could be on the cards

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 16, 2012 1:04 pm AEDT

After paying 28 cents a year in dividends for the last six years, an increase in Telstra's dividend could be on the cards.

Australia's largest telecommunications company, Telstra Corporation (ASX: TLS) re-affirmed that it would pay a fully franked 28 cent dividend in the 2013 financial year. In 2014, dividends will be considered on a half-yearly basis, and Chairman Catherine Livingstone has said that the company aims to increase dividends over time.

Telstra is transitioning from a business delivering voice over phones, to one delivering data over devices. Mobile network traffic is doubling every year – not hard to see when 50% of mobiles are smartphones, and smartphones and tablets are more popular than PCs. Telstra also announced that the day after Apple launched the iPhone 5 was its biggest retail trading day ever, and the company has sold 100,000 iPhone 5s since then. Its fastest mobile network, 4G covers 40% of the population and Telstra is investing $1.2 billion to expand coverage to two-thirds of the population.

Telstra have stated that mobile broadband is more popular than fixed broadband – despite the slower speeds available on mobile versus fixed – which could have consequences for the NBN fixed network. Despite the popularity of mobile, the company's fixed line network is experiencing more than 50% annual growth in data traffic, primarily driven by video in the consumer market. Telstra has now sold more than 400, 000 T-boxes, a device which allows users to access Foxtel and download movies from Bigpond over a broadband connection.

The company also confirmed that it is accelerating the delivery of infrastructure to NBN Co, across this year and FY 2014, to bring forward benefits from the NBN Agreements (Call me sceptical, but is that so that revenues are received before the next Federal election, and to mitigate risks of Liberal government taking office?)

All-in-all, Telstra is taking the fight to its competitors, Optus – owned by Singapore Telecommunications (ASX: SGT) and Vodafone – part owned by Hutchison Telecommunications (ASX: HTA). Vodafone doesn't even have a 4G network yet, and Optus has only just started rolling out its own. With the company due to receive $11 billion in compensation as the NBN rolls out, continued phenomenal growth in mobiles and data, should see Telstra maintain or even increase its edge over its rivals.

The potential for higher dividends in future is the icing on the cake.

If you only invest in one company this year, make it our "Top Stock for 2012-13". Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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