selling is continue, page-23

Agree with most of what you say wintermute. Re:

Logic dictates that 10%+ div is unsustainable and either SP must rise or 10% div is not going to be met, if not next round then the one after.

This situation of high dividend yield was very common with bank stocks during the onset of the GFC when panic set in. While the high percentage dividend yields did not last for as long as Telstra's because the bank's share price recovered relatively quickly, it shows that such situations do occur in the market.

It is important to remember that the board's ability to pay dividends is not constrained by the share price or dividend yield, but by earnings and cash flow. On the last two counts, Telstra is in a position to continue paying dividends as indicated by David Thodey. That the share price is so low, in spite of the dividend yield is due to:

a. The Future Fund, the largest individual shareholder selling stock. Why? I don't know, but I have speculated above and provided my concerns

b. Paranoia about how the government may shaft Telstra

c. Concerns about the long-term prospects and profitability of the company.

Of these three factors, shareholders cannot do much about the first two as these are political factors and very few people within the political establishment know what is to happen or may be happening. It maybe the case that what has been foreshadowed to happen will happen as foreshadowed (i.e. HoA with NBN Co). Or the NBN may fall apart and take the HoA agreement with it. Once the uncertainty is removed, there is no reason why Telstra's share price should adjust to what I think are more normal levels. The market has a way of magnifying uncertainty, panic and hysteria for Telstra more than for other companies. For example, for the miners, the markets are not pricing in any possibility that the RSPT could be renegotiated, so I am less comfortable buying mining shares than Telstra shares.

The third reason i.e. future profitability is a bit of a red herring for me. Telstra continues to be a very profitable company and I can find a fair few companies on the ASX which are significantly less profitable than Telstra and have far less predictable and risky earnings patterns than Telstra, and which are priced at significantly higher P/E multiple than Telstra.