Telstra shares jump following first nod from JPMorgan in six years

Last week Telstra's board confirmed it would pay shareholders a fully franked dividend for at least two years, making it one of the highest returning shares on the market.

Analysts are recommending Telstra despite ongoing uncertainty over the introduction of the national broadband network, with key regulatory legislation awaiting senatorial approval.

Telstra is also smarting after the Future Fund last week said it would sell down its 9.8 per cent stake in the company in coming months.

Trading in Telstra was strong yesterday, with more than 175 million shares changing hands, compared with 225 million last week. "For the first time in six years we see value in the stock and an interesting risk-return profile on Telstra," a note by JPMorgan telecommunications analyst Laurent Horrut said. He increased the price target to $3.08 up from $3.06 with an "overweight" rating, which recommends Telstra shares should be a large part of a managed fund.

"A lot has been said about Telstra's high yield [of 11 per cent]. It is one of the highest both domestically and internationally. More importantly for us it does now appear secure for at least the next two years."

But while the dividend of 28? annually can be maintained, the franking credits might not last. Telstra needs to pay at least $1.5 billion in tax every year to generate enough franking credits to fully frank the 28? dividend, which means it needs to earn at least $3.5 billion post-tax. Earning less would put franking at risk, Mr Horrut said.

Two new mobile providers entered the Australian market this week: Europe-based Amaysim (on the Optus network) and British-based Lycamobile (on Telstra's 2G network). Both offer per-minute rates of 15?, and 5? per text. Amaysim is planning a three-year marketing campaign.