Dominant market positions, a track record of above average capital gains and dividends with tax-effective franking credits make Australia's biggest and best blue chip stocks too good to ignore.
Couple that with ongoing low interest rates, inflation of 3% and the recent market setback and it seems now is a great time to snap up some bargains. Three stocks which investors are likely taking a closer look at are Telstra Corporation Ltd (ASX: TLS), Qantas Airways Limited (ASX: QAN) and Westpac Banking Corp (ASX: WBC).
Telstra is renowned for its big dividend yields and defensive characteristics. At $5.41 per share, it yields 5.4% fully franked. Grossed-up that's 7.7%, more than double the returns offered on some term deposits. But Telstra isn't devoid of growth either. The telco is in poll position to benefit from a rise of machine to machine communication and has made strategic investments in Asian markets.
Despite being one of Australia's most prominent brands, Qantas isn't known for paying dividends. In the past five years Qantas' share price has fallen from $3.00 to just $1.33. Unfortunately, despite management's best intentions, the future continues to look bleak for shareholders who have intentions of beating the market, with increasing competition from rivals such as Virgin Australia Holdings Ltd (ASX: VAH) and Air N.Z. FPO NZ (ASX: AIZ). As Richard Branson famously said: "The easiest way to become a millionaire is to start out as a billionaire and invest in an airline."
Finally Westpac, Australia's second largest bank by market capitalisation is a favourite for investors looking for a passive income source. Analysts are expecting a grossed-up dividend yield equivalent to 8% to be paid in the next 12 months.
Buy, Hold or Sell?
At today's prices, I believe none of these companies are worthy additions to investors' long-term portfolios. As much as I like it, Telstra currently trades significantly above my fair value estimate, whilst Westpac also doesn't have the earnings growth potential to support its current valuation.
