Are Telstra shares a top buy for dividend income?

Can we call on Telstra shares to be a strong dividend choice?

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Telstra Group Ltd (ASX: TLS) shares have been a popular pick for dividend income for a while. There are plenty of reasons why this could be the best time to invest for years.

The ASX telco share is best known for its mobile network, but the business has a few other segments that also seem appealing to me. Before I get to that, let's look at the dividend credentials of Telstra.

Growing dividend

The NBN transition was a difficult period for Telstra and its dividend, with the dividend and profit taking a hit.

However, now that the business is through that challenging change, it's seeing regular profit growth and dividend increases. That's what I want to see from a good ASX dividend share, particularly in this period of elevated inflation – dividend growth can offset higher expenses in our personal lives.

The Telstra interim dividend was increased by 5.9% to 9 cents per share. This translates into an annualised grossed-up dividend yield of 7%, which is materially more than what anyone can get from a savings account at the moment.

Estimates on Commsec suggest it could pay a grossed-up dividend yield of 7.4% in FY25 and 7.8% in FY26.

Infrastructure and data

I think there is one key factor that will help Telstra continue to deliver profit growth and dividend growth for the foreseeable future. It's the ongoing growth of subscriber numbers – it seems many people are attracted to the telco's market-leading network reliability and coverage. That helps attract subscribers and allows the business to keep investing in its network, keeping it at the number one spot.

There are two other promising areas that I'll point to for the future of Telstra shares.

The first is that it is working on growing its wireless home broadband offering. If it can get more people using this 5G-powered broadband, Telstra will be able to capture a lot of the margin that is currently going to the NBN. Higher profit margins could help grow the net profit after tax (NPAT).

Another very promising development is the massive amount of data that is being used and processed in Australia (eg AI). That data has to get into Australia somehow, and Telstra owns a significant amount of subsea cable. Telstra is also investing in its own fibre network for extra capacity between capital cities. The huge growth of data centres could lead to more demand that Telstra carries through its networks, which is likely to be a boost for earnings over the long term.

I think the Telstra share price is compelling for the company's defensive nature. According to Commsec, Telstra shares are valued at 17x FY26's estimated earnings. I think it's a very good time to invest for the long-term.

Motley Fool contributor Tristan Harrison 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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