There are a number of ASX blue chip shares for investors to choose from, but two of the strongest to consider are Commonwealth Bank of Australia (ASX: CBA) shares and Telstra Group Ltd (ASX: TLS) shares.
CBA is the largest ASX bank share, while Telstra is the largest ASX telco share. Both are leaders in their respective fields in Australia with the largest market shares.
But which of these heavyweights is the best to buy for potentially more reliable returns?
Dividends
Firstly, it's important to say that no return on the share market can be truly 'safe'. Share prices move every trading day with different buyers and sellers. Sometimes investors become nervous and sell their shares for a discounted price.
Dividends are paid from company profits and can be a bit more consistent than the share price because it is the boards of the companies that decide the level of the payments.
Let's look at the current expectations for the possible dividend yields for the two ASX blue chip shares.
Commsec forecasts, which are provided by independent sources, suggest that CBA shares could pay a grossed-up dividend yield of 6.3% with a possible annual dividend per share of $4.40. Telstra shares could pay a grossed-up dividend yield of 5.7% with a potential annual dividend per share of 17 cents per share.
But, there's more to the dividend than just the current financial year for these ASX blue chip shares. Knowing where the dividend is going could be important too, considering how important the dividend return can be for shareholders.
By FY25, CBA could pay an annual dividend share of $4.57, which would be a grossed-up dividend yield of 6.5%. Telstra could pay an annual dividend per share of 19 cents per share in FY25, which would translate into a grossed-up dividend yield of 6.3%.
So, over the next couple of years, CBA might pay a larger dividend yield. However, Telstra's dividend could grow at a faster pace and narrow the gap between the yields over time.
Which is the better ASX blue chip share?
For me, Telstra has a key sector advantage over CBA. The ASX bank share receives good cash flow from people and businesses that pay cash flow monthly.
Telstra is the leader in the telco space, it has a strong position with its 5G network. There are only a few real competitors for Telstra such as TPG Telecom Ltd (ASX: TPG) — which includes Vodafone Australia — and Singapore-owned Optus.
But with CBA, there are many competitors. On the ASX alone, there are numerous players all offering a loan just like CBA such as Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Group Ltd (ASX: MQG), Bank of Queensland Ltd (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN), Suncorp Group Ltd (ASX: SUN), and MyState Limited (ASX: MYS).
Indeed, there is so much competition in the banking sector that it seems to be pushing down the lending margins. Meanwhile, Telstra is expecting higher profit margins with its T25 strategy.
I'd choose Telstra shares as my preferred ASX blue-chip share. I think there is going to be appealing demand growth in telco services thanks to an increase in video streaming, other services, and new technologies that will need a data connection such as automated cars.
The final factor that makes me pick Telstra is that it's diversifying its earnings, opening up new growth streams with Telstra's digital healthcare division, and the Asian growth with its recent Digicel Pacific acquisition.
