TELSTRA closed at $3.54 yesterday, its highest share price since December 2009, as investors fled to defensive stocks.
Telstra has confirmed it will maintain annual dividends at 28? for the next two years. It will also set aside billions from its deal with NBN Co for a possible dividend increase after 2014.
Shares surged 7? on Wednesday's closing price and reached a 30-month high. Telstra plunged to $2.79 last August amid fears it would not complete the deal with NBN Co.
Chief executive David Thodey said last week Telstra would consider increasing dividends in 2014, when it had enough franking credits, or conduct an on-market share buyback.
The telco finalised a deal with NBN Co on March 7. It valued the deal at $11 billion in 2010. Last week Telstra revealed it would take in $2 billion to $3 billion in excess cash flow over the next two to three years, with regular annual payments from 2015 onwards.
Telstra is one of the highest-yielding stocks on the market at around 8.75 per cent attractive in light of a likely cash rate cut by the RBA next week.
Analysts say foreign investors have become interested in Telstra because of its high yield. Geoff Voller, senior private client adviser with RBS, said his domestic clients had been looking for low-risk defensive shares over the past four to six weeks. "And following the NBN deal and some really impressive presentations by David Thodey, I think people are starting to get a lot of confidence that the Telstra business model is a good one," he said.
"An increase to dividends or a share buyback would also push up the share price leading to a capital gains."
The Federal Court this morning will deliver its judgment on an appeal by Telstra, the AFL and the NRL against a decision allowing Optus to sell a mobile television service.