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Hewison Insights

Telstra – Where to from here?

Andrew Hewison
Managing Director
27 Jun 2011

Since privatizing and listing on the ASX in 1997, Telstra has undoubtedly been the most frustrating investment for Mum and Dad investors, and Financial Advisors for that matter.

Telstra One listed for $2.60, T2 listed for $4.51 and T3 for $2.11. The company now trades around $3. So why on earth do investors continue to buy Telstra? Well, many investors have resigned themselves to the fact that growth-wise Telstra will never go anywhere, but when a company is paying a golden dividend of 9.5% per annum fully franked, does anyone really care about share price performance?

The answer of course is yes; however, if you own Telstra in a super fund in pension phase paying you a pension, making the fund tax free, the total income return to the fund on a $50,000 investment is $6,785 per annum. That is a whopping 13.57% return.

The $6 million question is now “Is it sustainable?”According to equities research provider Morningstar, the answer is yes, particularly in the wake of last week’s deal struck with the Government over the rollout of the NBN network. Although Morningstar made some eye catching observations of the deal –

  • ‘Do not forget TLS was blackmailed into the situation with threats of withdrawal of access to future mobile spectrum, the forced sale of the HCF network and sale of the 50% stake in FOXTEL if it did not comply.’
  • ‘Rough stuff and bully boy tactics in a 2010 democracy.’
  • ‘The agreements are expected to deliver approximately $11bn in after tax net present value over their long-term life and long-term it is.’
  • ‘The Definitive Agreements with NBN Co and the Commonwealth and the financial detail of the proposed arrangements underpin our positive stance and the sustainability of the 28c per share dividend.’
  • ‘We suggest gradually increasing free cash flow will allow the maintenance of a 28c per share dividend, reduction of debt levels and some capital management initiative.’

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.