Telstra rally has $5 back within reach

The miners have grabbed all the attention in recent weeks. But yield continues to drive Telstra higher

The analysts have only seen problems for the past six weeks. Asbestos, market saturation and uncertainty over the NBN rollout.

But the Telstra faithful have seen only one thing – the attractive dividend.

The telco giant has soared at least 10% since mid June in a recovery rally that has been dominated  by the major miners.

Telstra is back on target to overhaul the $5 a share mark once again after cementing its position above that level in the month before US Federal Reserve chair Ben Bernanke pulled the rug from global equity markets in May (see Adam Carr's Will Bernanke walk the taper talk?).

Despite the massive run in recent weeks, Telstra is still throwing off a 5.7% yield on 2013 estimated earnings and 5.8% of this year’s projected earnings.

Most brokers have a price target at well below this morning’s opening price of $4.94 although almost all give a nod towards management and the manner in which the business is being run.

Just as they overlooked the underlying reasons for the May rally in Telstra, they again seem to be missing the importance of yield.

With its dominant position and strong margins, there is little threat to the sustainability of Telstra dividends in the medium term while its NBN deal will underpin those yields for the short term.

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