In the current market, investors should avoid stocks with complicated structures or high gearing levels when seeking a good yield from shares.
The companies that will be able to maintain higher dividends are non-cyclical stocks with low gearing and strong cash flow.
Telstra is such a company. Telstra has a strong dividend yield (6.4%) for which investors do not have to pay a high multiple(P/E15).
Telstra has just announced strong operational and financial results for the half-year ended 31st December 2007.
Telstra appears to be driving real momentum across the business as it approachs the mid point of its five-year end-to-end transformation.
This momentum has delivered 13% growth in profit after tax and the Board of Directors has announced a 14 cents per share fully franked interim dividend. The strong cash flow at the company should ensure that the high dividend yield is maintained even in a tough financial climate.
In addition, Telstra raised its fiscal year 2008 guidance. Telstra expects to report an outcome of 3% to 4% in total revenue growth, up from previous guidance of 2% to 3%.
Expected growth in earnings before interest and tax (EBIT) has risen from previous guidance of 5% to 7% up to 6% to 8%.
Free cash flow increased $462 million to $1,324 million mainly due to:
• An increase in earnings; and a
• $100 million distribution from the FOXTEL partnership.
The 2008 Olympic Games will be streamed on Telstra's Next G network and BigPond internet service. The Next G network has one million customers in Australia, but this will expand in April 2008 when CDMA users migrate across. This is all positive for Telstra's bottom line, going forward.
In comparing Telstra’s performance against Asian, European and US peers, such as Verizon, Telefonica, China Telecom and AT&T it ranks at or near the top on many key financial measures, as the transformation revitalises every aspect of the business and drives both revenue and earnings growth.
Buy Telstra (ASX:TLS)