The market appears to have cooled on Telstra Corporation Ltd (ASX: TLS) as an investment over the last two months or so with the stock having fallen nearly 6.2% in that time – compared to the S&P/ASX 200's (Index: ^AXJO) (ASX: XJO) 1.6% gain.
However, the stock could be in for a real kick today (and in the coming weeks) if, as expected, the Reserve Bank of Australia decides to wield its axe on the nation's official cash rate again.
Interest rates are currently sitting at 2.25% but are expected to be cut by 25 basis points when the RBA Board meets this afternoon. By 2:30pm Sydney time, we will know their decision and this will likely have a significant impact on the share prices of Australia's highest yielding dividend stocks.
At $6.32 per share, Telstra is expected to yield 4.7% this financial year, fully franked, or 6.8% when grossed up. If interest rates fall, you can expect investors to flock toward that yield in the hope of offsetting poor returns from other investments, such as term deposits and government bonds.
While the same can be said for other popular high-yielding stocks such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), the market could react strongly whichever way the Reserve Bank elects to go.
Should it ease monetary policy further, the share prices could surge – possibly pushing the ASX 200 above the 6,000 point mark for the first time since 2008. Should it elect to leave rates unchanged, the market could instead punish these stocks and the portfolios of hundreds of thousands of Australian investors in the process.
Regardless of what happens this afternoon, an investment in Telstra is no cheap bet. Although the stock has retreated from a 14-year high of $6.73, it is still trading on a lofty premium in contrast to its growth potential. As such, Telstra isn't the best way long-term investors can profit from Australia's falling interest rates.
