Telstra Group Ltd (ASX: TLS) shares have been known as a dividend pick for a number of years. It has paid an appealing dividend yield for some time, but I think there are a few good reasons why the company is an excellent pick for retirees these days.
If I were entering retirement, I'd want to have a portfolio of ASX names that are capable of delivering solid earnings and resilient dividends. Nothing is guaranteed in the ASX share market, so volatility is possible (and likely). However, a defensive earnings profile could reduce the pain during a bear market and may enable ongoing cash payments.
Indeed, if I were retiring, bought good companies and just focused on the (growing) dividends, then that could lead to a fairly stress-free life.
Telstra ticks all three of the boxes I want to see from an ASX share for it to be an ASX retirement share.
Revenue growth
If a company can increase its revenue then it gives itself a great chance of benefiting from economies of scale and growing net profit after tax (NPAT).
Telstra can grow revenue in two main ways – growing the number of subscribers and increasing the revenue per subscriber.
Australia's population is increasing at a fast rate, which should be helping Telstra because as the largest telecommunications company, it's probably winning a number of new subscribers.
The return of tourists, international workers and students should also translate into more revenue for the telco as well.
Telstra has been increasing its prices for mobile subscribers in line with CPI inflation, which is providing a useful boost for the company.
Postpaid handheld service average revenue per user (ARPU) grew by 5.4% in FY23. The number of postpaid retail services in operation (SIO) grew 86,000 to 8.8 million, while prepaid handheld revenue saw a 9.4% increase in ARPU and there was a 247,000 increase in unique users.
In FY23, total income increased by 5.4% and 'underlying' total income grew by 7.4%.
Profit is growing
Profit growth is usually a key factor that helps send the Telstra share price higher over time.
Telstra is able to leverage its infrastructure as it grows users and revenue. It's already paying for the infrastructure, so new users spread out the fixed costs among more users, enabling margin growth.
The company is also working hard at reducing its costs, or at least slowing down the growth rate. That's one of the main goals of its T25 strategy. It's working so far.
Reported earnings before interest, tax, depreciation and amortisation (EBITDA) increased 8.4% to $7.9 billion and net profit after tax (NPAT) rose 13.1% to $2.1 billion. As we can see, EBITDA rose faster than revenue and NPAT rose faster than EBITDA – that's what I want to see from a good business.
I like that the business is looking to grow profit by diversifying, such as the recently announced acquisition of Versent, a cybersecurity business.
Growing dividends
Telstra grew its annual dividend in 2022 and 2023. Growing the dividend each year from now on is not guaranteed, but growing the passive income payments over time is one of the company's goals.
According to the projection on Commsec, it could pay an annual dividend of 18 cents per share. At the current Telstra share price, it translates into a grossed-up dividend yield of 6.8%.
I think that's a solid starting yield for retirees, with more growth projected in the coming years.
