When you buy individual shares, you are implicitly saying that you think your investments will do better than the benchmark. Why?
Because if you didn't think that, you could just buy an S&P/ASX200 (INDEXASX: ^AXJO) (ASX: XJO) index tracking fund and earn the same returns as the market over the long term (and would likely see respectable results). Since you're in the business of beating the market however, here's one company that I think could be a surprising market-beater:
Telstra Corporation Ltd (ASX: TLS)
Priced at 16 times earnings, Telstra's 7% dividend alone could be enough to beat the market – especially when it's 'grossed up' to include the benefit of franking credits. In that situation, Telstra's dividend grosses up to around 9%, a very respectable return on an investment where, frankly, shareholders don't have to do a whole lot.
Telstra is one of Australia's biggest companies and it has the management quality and brand power to match. This is not some high-risk company where you must check the cash flows every 3 months to make sure it is growing enough to justify the price you paid for it.
There are some risks, namely that the dividend is cut. Telstra is currently paying out all of its profits in dividends and a decline in profits – for example when the NBN construction payments finish – could see the company's dividend fall somewhat.
However, even if you factor in a smaller dividend, Telstra still has a lot of appeal as an income investment, and could potentially be a market-beater, despite the challenges.
