The Telstra Corporation Ltd (ASX: TLS) share price is an interesting consideration as an ASX dividend share at its current level.
Telstra is the largest telecommunications business in Australia, with a strong presence in both mobile and home broadband. It also has exposure to a number of other telco areas with Telstra Health, as well as a presence in the Asia Pacific region with its Digicel Pacific acquisition.
The company has been committed to paying investors a high level of dividend income for an extended period of time.
Even if the dividend has been variable over the last couple of decades, it has remained at a high dividend payout ratio. In other words, even though Telstra's dividends and net profit after tax (NPAT) have changed over the years, it has consistently paid out a relatively high proportion of its profit to shareholders.
Since 2019, Telstra has paid shareholders a half-yearly dividend of eight cents per share every six months.
It seems that Telstra is on track to pay another eight cent per share dividend for the second half of FY22.
How big will the Telstra dividend be in FY23?
Dividends are not guaranteed. Even if the telco has provided comments or guidance about its future dividend, it's still not 100% certain.
Having said that, let's look at what Telstra has said regarding its upcoming dividends.
As part of its T25 strategy, the telco outlined its ambition to increase its underlying return on invested capital to around 8% by FY23. It's also targeting a compound annual growth rate (CAGR) of mid-single digits for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and high-teens for earnings per share (EPS) between FY21 to FY25.
Telstra said:
Through delivery on its T25 commitments, Telstra is confident in maintaining a minimum 16 cent per share fully franked dividend, subject to no unexpected material events and the requirements of its capital management framework.
Based on an estimated 16 cents per share dividend, the current Telstra share price offers a potential grossed-up dividend yield of 5.9% in the 2023 financial year.
Is the dividend ever going to grow again?
Telstra said that by implementing its T25 strategy, it will become a "vastly different company". Delivering profit growth will certainly help as it seeks to grow its dividends "over time".
However, it acknowledged that it needs to grow underlying earnings in line with its financial ambitions, and grow its franking balance in a bid to grow its fully franked dividends.
It intends to grow profit by extending its 5G coverage, cutting costs, earning a higher margin through wireless home broadband, and increasing its mobile prices in line with inflation.
Looking at estimates on CMC Markets, the FY24 dividend forecast is 17.7 cents, implying a 10.6% increase in the dividend. That higher dividend translates into a forward grossed-up dividend yield of 6.5%.
