Although the Telstra Corporation Ltd (ASX: TLS) share price has rallied 77% over the past five years, its shares are primarily held for their income potential.
However, with the share price falling from $6.50 to $5.35 over the past year, many shareholders are likely questioning if now is the right time to sell out.
Personally, I think Telstra shares are slightly outside the ideal buying range. But if I held shares from lower prices, I wouldn't be in a rush to sell out.
Here are three reasons I think Telstra shares are a hold:
- Low-interest rates mean dividends are still king
Telstra has one of the most reliable dividends on the share market. So if you sell your shares today, where else will you get a comparable yield of 8.4%? In this record-low interest rate environment, you'd be lucky to find a bank term deposit offering a quarter of that amount in interest!
- It's a defensive investment
As Australia's leading provider of mobiles, fixed internet, and other telecommunications services, Telstra has a reliable and sticky revenue stream. Although its leadership position is being challenged by the likes of TPG Telecom Ltd (ASX: TPM) and Vocus Communications Limited (ASX: VOC), Telstra shares could form the foundation of a well-diversified portfolio.
- Shares aren't ridiculously expensive
Buy low sell high; that's what we're told. At their current price of $5.35, Telstra shares aren't that expensive. Therefore, from a security selection point of view, there appears no reason to rush out and take profits on your investment.
Foolish takeaway
Telstra shares are not a risk-free investment by any means. However, in my opinion, the rewards from holding its shares, such as the prospect of modest long-term capital growth and dividends, appear to outweigh the risks.
