During times of extreme market pessimism, the attributes of defensive, blue-chip businesses really come to the fore.
While bear markets and heightened volatility drive some investors into gold stocks such as Newcrest Mining Limited (ASX: NCM), for others it means finding companies backed by reliable, "hard assets" and maintainable revenue and earnings bases.
Property-backed businesses such as Real Estate Investment Trusts (REITs) are one set of investments rightly considered to be a "safe harbour" for investors during market panics, but the unfranked nature of REIT distributions does decrease their appeal to many investors.
Due to the lack of franking credits, many investors prefer other defensive equities over REITs.
One such stock which regularly features in the portfolio of defensive investors is telecommunications giant Telstra Corporation Ltd (ASX: TLS).
There are a number of reasons Telstra is arguably the ultimate defensive investment to own in troubled times…
- A diversified revenue base of literally millions of customers.
- A sticky customer base – it takes significant hardship before a customer cancels a phone or internet connection – telecommunications is viewed as an essential service.
- Other "blue chip" shares such as Commonwealth Bank of Australia (ASX: CBA) arguably hold significant risks due to their financially leveraged balance sheets. This leverage may not be a problem in the good times, but can quickly become concerning during market meltdowns. Telstra's balance sheet arguably holds fewer risks.
- With Telstra's revenues looking defensive, this bodes well for earnings. In turn sustainable earnings levels translate to maintainable dividends.
These factors can help provide some stability to the share price and importantly allow for investors to receive regular dividends.
In fact, according to analyst consensus forecasts provided by Morningstar, Telstra is expected to increase its dividend per share by one cent per share each year over the next three financial years. Based on the FY 2018 dividend forecast of 33.5 cents per share, Telstra's shares are trading on a prospective yield of 6.3% fully franked.
