Telstra Group Ltd (ASX: TLS) often stands out as a strong candidate for investors seeking reliable passive income through dividends. Despite experiencing some challenges over the past year, with its share price underperforming and showing limited movement in 2024, recent signs of recovery have renewed interest among income-focused investors. While it may not be the top performer in the ASX 200 Index (ASX: XJO), Telstra offers several compelling features for those prioritizing dividend returns.
Three key factors generally determine the appeal of a dividend-paying stock: yield, stability, and growth. Telstra excels in all these areas, making it an attractive option for investors looking for steady income.
Firstly, Telstra offers an impressive dividend yield. Forecasts suggest that the company is set to deliver an annual dividend per share of 18 cents for FY24, which is expected to increase to 19 cents in FY25 and 21 cents by FY26. These projections translate into forward grossed-up dividend yields of 6.5%, 6.9%, and 7.6%, respectively. Such yields are particularly appealing for those focused on generating passive income.
Secondly, the stability of dividends is a crucial consideration, especially during economic downturns. Telstra’s role as a provider of essential telecommunications services positions it well to maintain a steady revenue stream. Given that most households and businesses rely on internet and mobile services, these offerings are seen as indispensable and less susceptible to economic fluctuations.
Thirdly, dividend growth is essential to combat inflation and enhance the value of passive income over time. Telstra’s dividend payouts are projected to grow in line with its rising mobile subscriber numbers and increasing mobile prices. This growth supports the company’s ability to expand profit margins and continue offering increasing dividends. Estimates suggest a 24% increase in net profit after tax (NPAT) between FY24 and FY26, reaching $2.54 billion.
When compared to other ASX dividend stocks, Telstra provides more stability than some highly variable payers such as BHP Group Ltd (ASX: ASX:BHP), Rio Tinto Ltd (ASX: ASX:RIO), and Fortescue Ltd (ASX: ASX:FMG). Its dividend yield also surpasses that of companies like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), and Wesfarmers Ltd (ASX: ASX:WES). Additionally, Telstra is expected to deliver stronger dividend growth compared to firms such as APA Group (ASX: APA), Coles Group Ltd (ASX: COL), and Sonic Healthcare Ltd (ASX: SHL).
While Telstra is not without its challenges and other ASX dividend stocks may also offer attractive features, its combination of high yield, stability, and growth potential makes it a standout choice for those seeking reliable passive income within the ASX 200.