Should You Buy Telstra Shares at This Price?

What happened to the TLS share price?

Telstra Corporation Ltd [ASX:TLS] was slightly down today by -0.09% in early afternoon trading; however, TSL fared much better than the ASX 200. Following a sharp reversal in the oil price over night, world markets retreated in sync. Telstra correlates with the market strongly and naturally pulled back as well.

Why did TLS shares do this?

Telstra has achieved a similar level of gain as the index over the last six months, between 0–5%. Investors need to remember that Telstra is one of the largest market-cap companies in Australia. It moves with the index — and it moves the index. This is also where a lot of fund money stays at. So when you own Telstra, you are more or less after a beta strategy (index strategy) or low risk strategy.

Many say Telstra is for long term investors, which is true. Due to the large-cap nature of the stock, it moves slowly in line with the index. This means it takes longer for you to create bigger returns. For example, the stock basically achieved the index return over a one year period, but it did splendidly over a five year period, returning over 80%.

The question is, should you invest and hold onto Telstra for the future? For the dividend, yes; the stock pays a dividend yield at 5.67%.

How about for the capital gain? It is hard to say. In fact, it is reasonable to believe a company this big cannot grow at an ultra-fast speed.

Fundamentally, there are a lot of challengers to Telstra’s dominant market share, such as TPG [ASX:TPM] and Vocus Communications [ASX:VOC]. Mind you, these two companies are both growth companies with a lot of momentum. They are high-return, high-risk stocks.

What now for TLS?

Coming back to Telstra, I believe the company will book moderate growth in a tougher, more competitive environment. That would be the average scenario I expect over the coming years. I expect the stock to more or less track and move with the index.

It will still be a sought-after stock for institutional investors, and it is a good beta strategy candidate. The dividend is fully franked, which is great. So if you are a long term investor aiming at a beta strategy, and you’re on the lookout for a great dividend payer, Telstra is definitely a good choice.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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