Telstra Group Ltd (ASX: TLS) shares are already paying an attractive dividend to investors. Could it be a good option for investors looking for ASX dividend shares for future retirement?
Telstra is one of the largest businesses in Australia with a market capitalisation of $50 billion according to the ASX.
When I think about what would make a good ASX share in retirement, there are three elements that I'd want to see: a good starting dividend yield, likely dividend growth and good prospects for earnings growth.
If I were in retirement, I'd want to feel confident that there's a very good chance the business would be able to keep paying a good dividend during a downturn, as that's when I'd be relying on dividend income the most.
I'd guess that most households and businesses view their phone bill as an essential service, so they'd keep paying it, making Telstra a defensive ASX share. Telstra maintained its dividend during the COVID-19 period, so I think it did well there.
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Dividend yield
If we look at the last two dividends paid by Telstra, it was two payments of 8.5 cents per share, totalling 17 cents per share.
At the current Telstra share price, that equates to a cash dividend yield of 3.9%, or 5.5% when grossed up for the franking credits. That's a solid starting dividend yield in my view.
The ASX telco share has started growing its dividends again after a difficult period of the NBN transition.
Earnings growth
A key element for a business to achieve good shareholder returns is operational and earnings growth. It's the profit that funds dividend payments and bigger profits can give investors confidence to pay for a higher Telstra share price.
The ASX telco share is expecting profit to keep rising to FY25.
Telstra is working on being more efficient and lowering costs throughout the business, which is improving its expense outlook.
Revenue is doing particularly well in my opinion, the company is seeing growth in subscriber numbers and an increase in prices for subscribers that's at least in line with inflation. Revenue growth can be a driving force for the net profit. For Telstra's underlying earnings, it's helpful that Australia's population continues to grow.
Dividend growth?
In retirement, I'd want to see dividend growth so that it could provide protection against inflation. Plus, if it's growing then it's not going down.
Estimates on Commsec suggest that the Telstra dividend could grow by 6% to 18 cents per share in FY24, which would be a grossed-up dividend yield of 5.8%. In FY25 it could see dividend growth of another 10% to 19.8 cents per share, putting the future grossed-up dividend yield at 6.4%.
One of the goals of its T25 strategy is to grow its dividend for shareholders. The ASX telco share said it wants to:
Maximise fully franked dividend and seek to grow over time.
Foolish takeaway
Telstra is demonstrating the main elements that I'd want to see for ASX shares that I'd consider for retirement. Dividends and growth are not guaranteed, but growth of subscriber numbers is supportive for future growth and passive income.
