Can Telstra shares deliver 16% upside AND a healthy dividend this year?

Do Telstra shares offer the perfect mix of upside and income?

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In afternoon trade, Telstra Group Ltd (ASX: TLS) shares have dropped with the market.

At the time of writing, the telco giant's shares are down slightly to $3.97.

This means the Telstra share price is now down approximately 4.5% since this time last year.

While this may be a little disappointing for shareholders, it could have created a buying opportunity for the rest of us.

That's the view of the team at Morgans, which has the company on its best ideas list with an add rating and $4.60 price target on its shares.

Based on where Telstra shares are trading today, this suggests potential upside of approximately 16% for investors over the next 12 months.

But the returns don't stop there! Far from it, Morgans is expecting Telstra to pay another 16.5 cents per share fully franked dividend in FY 2023. This represents a healthy 4.15% dividend yield at current prices.

Why should you buy Telstra shares?

Morgans believes that Telstra shares are worth far more than their current market value. This is due largely to its "strong earnings momentum and a strong balance sheet", as well as its recent legal restructure.

Its analysts highlight that the latter, which has recently been approved by shareholders, could unlock value. It explained:

TLS currently trades on ~7x EV/EBITDA. However some of TLS's high quality long life assets like InfraCo are worth substantially more, in our view. We don't think this is in the price so see it as value generating for TLS shareholders. This, free option, combined with likely reputational damage to its closest peer, following a major cybersecurity incident, means TLS looks well placed for the year ahead.

Overall, this could make Telstra a top blue chip option for investors in 2023.

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 has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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