Telstra Corporation Ltd (ASX: TLS) is Australia's biggest and best telecommunications company.
Whilst most people buy it solely for the dividends, here are my three favourite reasons for holding Telstra shares today…
Dominance
Telstra controls the lion's share of fixed voice, mobiles and fixed data markets in Australia, despite fierce competition from the likes of TPG Telecom Ltd (ASX: TPM), Optus and Vodafone.
Whilst a shift to the cloud and a rollout of the NBN Co's fibre optic network stood to disrupt Telstra's dominance, its competent management team moved to capitalise on the industry's transformation by forcing the government into a lucrative agreement and investing heavily in new growth areas.
Meanwhile, a focus on reliability and customer service saw Telstra grow total mobile subscribers by more than 3.7 million between 2011 and 2014.
Telstra's machine-to-machine communication offering, allowing networked devices to 'talk' to each other, has also increased dramatically in recent years, although it is relatively small.
Coupled with $3.66 billion – around half of TPG Telecom's total market capitalisation – in annual capital expenditures, Telstra's local dominance in new and existing business lines appears set to continue.
Dividends
Despite achieving total shareholder returns of nearly four times that of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) in recent years, Telstra's dividends per share have increased just 5% since 2010. Nonetheless, at today's prices Telstra shares are offering a reliable 4.8% fully franked dividend yield.
Growth
Former Telstra CEO, David Thodey, set an ambitious target for the telco to generate one-third of revenues from Asia by 2020. In its 2014 financial year, just 7.7% of total group revenues came from outside Australia. However, excluding the recent sale of its Hong Kong mobiles business, CSL, its foreign revenue contribution is more likely around 5% of group total.
Closer to home, as noted above, Telstra will benefit from the rise of machine-to-machine communication, eHealth, cloud computing and increasing smart device penetration amongst a tech-savvy population.
Buy, Hold, or Sell?
I've previously stated that fair value for Telstra shares is between $6.00 and $6.50. At a current price of $6.12, it appears fairly priced. Therefore, unless you're investing for the ultra-long term (seven years or more), it's currently closer to a hold than a buy.
Forget Telstra! Our #1 dividend stock is still a buy
