Is the Telstra (ASX:TLS) dividend heading up for the first time in almost 10 years?

What’s the outlook for the Telstra dividend?

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The Telstra Corporation Ltd (ASX: TLS) share price has returned to form in 2021.

Since the start of the year, the telco giant’s shares have risen 35% to $4.08.

Why is the Telstra share price on form in 2021?

Investors have been bidding the Telstra share price higher this year due to the company’s increasing positive outlook, which is being underpinned by its T22 and newly announced T25 strategy.

In September, Telstra’s CEO, Andy Penn, noted that the T22 was based on transforming the company, whereas T25 will be about driving growth.

Mr Penn: “T22 has been one of the largest, fastest and most ambitious transformations of a telco globally and today we are a vastly different company. This means we are poised for growth as our society and economy increasingly digitises and we all work, study, transact and get our entertainment online. These fundamental shifts, together with T25, will underpin our future growth and shareholder value.”

Telstra is now aiming for sustained growth and value by targeting mid-single digit underlying EBITDA and high-teens underlying earnings per share (EPS) compound annual growth rates between FY 2021 and FY 2025.

Dividend optimism

In light of the above, a number of analysts believe that Telstra could be on the cusp of increasing its dividend for the first time in almost a decade.

Telstra last increased its dividend in 2015 but the team at Goldman Sachs believe there’s potential for an increase in FY 2024.

Goldman commented: “We note that High-teens EPS growth aspirations suggest upside risk to 16c DPS by FY24E, in-line with expectations.”

The broker has pencilled in an 18 cents per share fully franked dividend in FY 2024 and then a 19 cents per share fully franked dividend in FY 2025. Based on the current Telstra share price, this will mean yields of 4.4% and 4.65%, respectively.

Goldman currently has a buy rating and $4.40 price target on Telstra’s shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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