Thinking about taking some profits on Telstra Corporation Ltd (ASX: TLS), or think the giant telco has run as far as it can and you might find better value elsewhere?
Here are a few reasons why you might regret the decision to sell your Telstra shares now…
- While Telstra struggles to generate double digit growth thanks to its dominance of Australia's telecommunications sector, the telco is still paying a fully franked dividend yield of 5.3%.
- The company is set to receive billions from NBN Co, the company rolling out Australia's National Broadband Network (NBN), over the coming years, as compensation for moving its customers off its ageing copper network.
- Telstra already generates massive cash flows, and thanks to the sale or partial sale of some of its non-core assets, should have a large cash balance. Those funds could be used to pay special dividends, buy back shares, pay down debt or return capital to shareholders.
- Some of the telco's smaller businesses such as Network Application Services (NAS) are growing fast, and taking advantage of the move to the cloud and growing demand for data.
- Plans to roll out a national wi-fi network could take revenues from NBN customers, and deliver another area of dominance for Telstra.
- Plans to expand its footprint into Asia to take advantage of the region's growing middle class. Telstra wants to launch profit-sharing agreements with major Asian telco providers, in exchange for building their 4G mobile networks. The company has already announced a joint venture with Telkon Indonesia to boost its NAS division across the region.
- Smart management. David Thodey and his team have turned around Telstra's performance in a number of ways. Relationships with government have been improved, and a huge focus on lifting customer service is paying dividends. Less customers are leaving, more are joining, and the company is no longer on the outer with the Federal government.
And you could add in its ongoing dominance of Australia's mobile sector, over competitors Optus – owned by Singapore Telecommunications Ltd (ASX: SGT) and Vodafone – partly owned by Hutchison Telecommunications Ltd (ASX: HTA).
For all these reasons, Telstra's shares could well be much higher in 5 to 10 years time.
