• Christopher Hall

Yield or Growth: Telstra IPO vs CSL vs CBA vs BHP

Yield or Growth: Telstra IPO vs CSL vs CBA vs BHP

How CSL, BHP and CBA became better yielding shares than Telstra over the last two decades.

When Telstra (TLS) listed on the ASX, it was thought of and lapped up as a high yielding share to add to portfolios. However, for long-term investors, TLS was a poor addition to the income portfolio. Investors seeking income would actually have been better off buying the low yield, high growth CSL, BHP or Commonwealth Bank. We look at the journey of the four companies to see why.

Telstra IPO

The Telstra IPO started in November 1997, with the final instalment a year later in November 1998.

For those who don’t remember, TLS was such a large IPO for the time, that it soaked up huge amounts of investors’ capital.

To enable the Australian government to receive all the money in exchange for the shares, TLS was offered as an instalment warrant; where half of the shares were paid for upfront ($1.95 for retail investors), and the other half 12 months later (an extra $1.35). The great attraction of these instalment warrants was that they paid the full dividend and franking credits to investors, making them very high yield from the start.

Here is the original TLS IPO offer document.

More than two decades later, the dividend in 2020 is $0.08 per annum compared to $0.13 per annum at the time of the IPO. Worse still is the share price, now trading at $3.06

Either way, investors seeking income in 1997 have lost capital and seen their dividend whittled away. The astute investor will ask how much TLS has earned investors over the years before judging the investment. Here are the calculations:

Total Return

When adding all the dividends received since the IPO to the original IPO investment, we can see that TLS’s total return of income and capital movements for a $10,000 investment is worth $32,481 in March 2020. This seems comparable to some property investments over the same time frame.

The downside is that the capital base has eroded and so too has the current, and most likely future, income from the TLS IPO investment.

Investing in growth for income

At the time of the TLS IPO, BHP, Commonwealth Bank (CBP), and CSL were all listed on the ASX. History shows that looking at the yield of these shares alone was a poor investment decision as the growth of the dividends is what matters most over time.

For income-seeking investors there were alternatives to the TLS IPO with similarly attractive dividends:

· CBA was paying 5.81%

· BHP paying 9.34%

· TLS IPO was 6.6% (or 4.24% including the final instalment); and

· CSL was a paltry 1.72%

However now, in 2020, the yield on these initial investments would now be:

· 79.8% for CBA

· 42.7% for BHP

· 3.33% for TLS

· 27.4% for CSL

Greatest Dividend Increases

Over time, CBA and CSL paid slightly higher dividends most years. This encouraged investors

to pay more for these shares, pushing prices higher still. BHP also paid higher dividends, although to a lesser extent than CSL and CBA.

In the FY19/20:

· TLS dividend went from $0.14 to $0.16 (including special dividends of $0.06)

· BHP increased from $0.51 to $2.91

· CBA from $1.03 to $4.31

· CSL from $0.25 (including a special dividend of $0.06 in 1998) to $2.87

What many investors did not expect is how much the CSL yield has increased, although today the yield is still only 0.97% of the total share price.

Greatest Total Return

Over the last two decades most of the share prices have increased significantly. Share buy-backs have most notably buoyed the share prices of BHP and CSL.

Including dividends paid, the initial $10k investment is now worth (excluding franking credits):

· TLS $32,481.60

· BHP $81,125.70

· CBA $63,493.08

· CSL $279,581

Interestingly, if you had used the dividend reinvestment plan (DRP) on CBA when possible, the total return would have increased to $84,179.71 over the same period.


Investing for yield over the long term is best done through a consistently increasing yield from the investment rather than a higher starting yield. This signifies that growth companies are the best way to increase the income of a portfolio over time.

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