Some things are just not meant to be.

Yet even so, the fascination with and the desire for some investors to buy Telstra [ASX: TLS] shares is unwavering.

Personally we don’t get it. If Telstra was the only share listed on the Australian Stock Exchange, we still wouldn’t touch it. In fact, I think I’d rather buy an over-priced property with a 100% mortgage and negative gearing than buy Telstra shares.

That’s how bad an investment in Telstra is.

Given where the share price is, we’d say that most investors agree:

But amazingly, there’s still a bunch of investors out there who keep lapping it up. They keep believe it can’t possibly get any cheaper.

Remember the scam last year with the sale of Telstra shares by the Future Fund? The fund managers and brokers were falling over themselves to grab a piece of the action.

So excited were they, that as we recall, the Future Fund ended up flogging more shares to meet the demand.

Yet still the share price has done nothing. And odds are it never will do anything.

But that doesn’t stop the brokers from trying to hoodwink their clients into the stock. Look at the chart below that we got from the CMC Markets Stockbroking website:

Of the five analysts surveyed – which granted, isn’t many – all five of them reckon Telstra is a cracking buy right now.

Then there’s the broker consensus on the Investsmart website. Seven buys and three holds. The analysts obviously reckon they’ve picked the bottom of the market for this dog:

Click Telstra Corp Broker History table to enlarge

But when I look at Telstra I just think, “Why would you bother?”

It’s not as though Telstra is the only share available to buy on the ASX. At the last count there was something like 1,800 listed stocks.

And not only that, it’s got so much going against it only a mentallist would consider the stock a good buy.

Think about it. Do you really want to buy or own a stock that owns and maintains technology that is up to 100 years old? And which faces stiff competition from better companies in the new technology areas.

Do you really want to buy or own a stock that has a quasi-government department in control of a big stake in the company?

Do you really want to own a stock where the government could destroy it at the single stroke of a pen? And where the same government is plotting to establish a taxpayer funded competitor?

We don’t. But plenty do.

But then we always hear this one, “Oh, but it pays a good dividend.”

Really? If you’d bought Telstra shares back in 1997 and held on, you would have picked up $2.98 of dividends.

Right now, Telstra is trading at roughly the same level as the initial float price of $3.30. So, taking the dividends into account you’ve almost doubled your money in thirteen years.

Factor in the real cost of inflation and your investment would be well under water.

And if you were unlucky enough to pay $6, $7 or $9 then you’re seeing on a fat loss right now.

We like dividend paying stocks, but that doesn’t mean you should forgo capital value.

The dividend with Telstra just isn’t good enough to justify holding it. There are plenty of other stocks on the market that will give you a decent dividend yield, plus the potential for some conservative growth as well.

But, I’m sure you know why nearly all the brokers and analysts have a buy recommendation on Telstra. The simple fact is, they’re keen to get their snout in the trough the next time the Future Fund decides it wants to flog some stock.

The millions in fees that UBS earned from the last sale is evidence of that. And as for the fund managers, well, it’s not their money anyway, and they’re always keen to do a favour for their broker mates, and vice versa – “You scratch my back…”

Look, maybe we’re wrong and maybe the Telstra share price could double or triple from here. But so what? Who cares? There are so many other opportunities on the market that staying with Telstra is just a monumental waste of your capital.

Our advice to anyone that’ll listen is to just sell the thing and be done with it.

Buy something else. Heck, I’d rather tell you to buy bank shares than Telstra shares – and that’s saying something!

Cheers.
Kris.

With more than 1,800 companies listed on the Australian Stock Exchange it always amazes me how mainstream brokers and analysts keep tipping Telstra as a good “growth play” or a “strong dividend payer.”

In my opinion Telstra is neither of those things. In fact there are three reasons why you should dump your Telstra shares now…

Reason 1: Government scams

Telstra is a company like no other. Arguably, it’s more influenced and regulated by the government now than it was as a state-owned company thirteen years ago. That makes government manipulation a real risk when owning Telstra shares.

Let me give you a recent example…

On August 20th, the Government’s ‘Future Fund’ – set up to manage the pension liability of public sector employees – decided it wanted to dump $2.37 billion worth of Telstra shares.

What did it do? It contacted broker UBS. UBSs sales guns then made a few calls to their mates in the big retail super firms.

And what did they do? They bought the lot – 684.4 million shares. All of it with the retirement savings of millions of Australians like you. Then they spread those shares across many of the funds they “manage”.

As a result, many Australians – maybe including you – became proud owners of a whole bunch of Telstra shares.

At the time of the sell-off, Telstra shares were selling for $3.47 each.

Then, on September 15th – just three and a half weeks later – the government announced it wanted to break up Telstra! Not surprisingly the share price plummeted – to $3.11.

Bottom line: If your super fund bought Telstra shares from the Future Fund on August 20th, you would have suffered a 10.3% loss on that holding by close of business on September 15th. And it wasn’t even your choice to buy the shares in the first place.

UBS referred to this as a “misunderstood” Government change.

I call it what it is: a scam.

Sure, it was a good result for public sector employees – but for the rest of the investing public it was a rip off. It just shows that the company, the Future Fund and the government have no regard for individual shareholders.

Do you really think the Future Fund didn’t know about the government’s plans? Make your own mind up. The fact is, this is just the latest in a long line of Telstra-related stuff-ups.

Who could forget the massive drop in the value of Telstra shares six months earlier? That was as a result of shareholder disgust at the way it handled its bid to build the government’s national broadband network.

If you were hitched to the sputtering Telstra wagon at that time, you’re probably still smarting from the huge $3.77 to $2.96 fall from February 25th to March 19th – a 27% dive in just three weeks.

You don’t need that kind of instability – especially in a blue-chip stock… especially not if you’re investing for retirement.

In short, Telstra is not being run for the interests of shareholders. The company is subject to government interference, which makes owning its shares a real gamble. Why would you want to invest in a company that is so easily manipulated by the government?

And that’s not the only reason to ditch these shares…

Reason 2: Dinosaur Technology

Telstra is an old company with an ageing and expensive infrastructure. It has spent millions of dollars over the last ten years upgrading the network to fibre optic cabling.

And what has it got from it?

Not much that I can see. Yes, Telstra is a monopoly, but how much more can the company grow? My guess is not much. It has expanded about as much as it can. And when there’s no room for more expansion, capital growth stops – and that’s why I’d steer clear.

If Telstra loses its virtual monopoly on Telco infrastructure then the opportunity for it to grow revenues and profits will be zero.

But the brain-trust at Telstra acts as though there’s no healthy competition. In a manner of speaking, that’s true. I mean there’s no competition for laying copper wires or maintaining eyesore phone exchanges in the suburbs, so we’ll give Telstra that.

But in the growth areas of Internet content, mobile, wireless and broadband, believe me, there’s plenty of competition. And customers are voting with their wallets to abandon Telstra.

Take it from me; there are other opportunities in telecommunications that look like a much better bet for investment than Telstra right now. If you want my advice, I’d concentrate your search on companies that have wireless, mobile and online capabilities – those are three areas where Telstra doesn’t have a monopoly.

These newer technologies are growth areas that smaller, nimbler companies are able to exploit much quicker than Telstra. Pick these kinds of companies and you really will have an advantage over other telecoms investors.

And if that hasn’t got you ready to ditch the old dinosaur – here’s my final reason…

Reason 3: They can’t even get the basics right

It’s not just Telstra shareholders that are fed up. Their customers are too.

You may remember the recent outcry about the $2.20 surcharge that customers had to fork out simply for the privilege of paying their bills in person at the post office.

Talk about complacency.

Even Telstra spokesmen admitted the company needs to be far better when it comes to customer service. But we’ve heard that before.

For instance, a company providing good customer service doesn’t get slapped with a staggering $17,238,634 fine by the Telecoms Industry Ombudsman after the release of its 2009 report – but that’s what happened to Telstra.

The TIO charges service providers a fee for each customer complaint it handles. The volume of complaints this year has been unprecedented for the TIO – they actually had to hire more staff and expand their offices to deal with it.

Telstra accounted for more than two-thirds of these customer beefs. Great news for the TIO revenues – obviously not so great for Telstra, and, more importantly, not so great for its customers or shareholders.

These are just a couple of recent examples of its substandard service. If I were to reel them all off in this article it would be the size of the Encyclopaedia Britannica.

Bottom line: Is this the kind of company you want your retirement money tied up in?

For the past few years Telstra has been plodding along. And quite frankly I can’t see that changing. In my opinion you’re unlikely to make any real money investing in Telstra.

The gains, if they happen, will be mediocre – and a long time coming. Shareholders must realise this, because non-shareholders certainly do.

Cheers,

Kris Sayce
Editor, Money Morning