As February fast approaches it's time for Telstra Corporation Ltd (ASX: TLS) investors to dust down the prayer mats and start praying to the deity of dividends, David Thodey. If the chief executive delivers a dividend increase it looks likely that Telstra's share price will receive further support throughout 2015.
Some analysts have forecast that Telstra may dish out a total of 31.5 cents per share in dividends in financial year 2015, which would put the stock on a forward (fully franked) yield of 5.11% when selling for $6.17.
Moreover, some have suggested Telstra's huge free cash flows could support a steadily increasing payout right out to financial year 2018. If Telstra were to payout 36 cents per share then, today's investors would be obtaining a 5.83% yield.
That might sound a bit skinny, but when you factor in the likelihood of steady capital growth, Telstra and its total returns begin to make sense as an investment even at today's heady prices.
Telstra is primarily a yield story but the digital future, a fast-growing technology services business, the potential for share buybacks, and opportunities in Asia could see it become a growth story too.
It's also worth considering where else a defensively-minded investor could look for fully franked income? After a golden run the big banks like Commonwealth Bank of Australia (ASX: CBA) may struggle to increase their payouts in the years ahead and declining payouts could equal painful capital losses.
All eyes will be on Telstra's half-year results due out mid-February and what capital management decisions David Thodey bestows upon his followers. In my opinion Telstra may well deliver, but it's no secret given its current valuation. The really smart investors should be looking at lesser known stocks with juicy fully franked yields and attractive valuations.
