Dividend deals: 2 top ASX shares that still look undervalued

Goldman Sachs thinks investors should buy these shares while they are cheap.

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There are few things better than being able to snap up high quality ASX shares when they are cheap.

The good news is that there are two household names that are trading on the ASX boards at a fraction of what investors were paying 12 months ago.

The even better news is that analysts see significant room for their shares to rise from current levels. They also expect some attractive dividend yields to sweeten the deal further.

Let's take a look at two ASX shares that Goldman Sachs thinks could be undervalued right now:

Telstra Group Ltd (ASX: TLS)

The first ASX share to look at is the nation's largest telecommunications company, Telstra. After another selloff this week, the company's shares are now down 21% over the last 12 months and at multi-year lows.

While Goldman wasn't overly impressed with Telstra's update this week, it remains very positive on the investment opportunity here. It said:

Overall we revise TLS FY24-26 EBITDA -1% and EPS by -1% to -3%, reflecting the revised mobile outlook and broader restructure. Our 12m TP is -7% to A$4.25, given earnings and reduction in mobile EBITDA multiple to 6.0X (was 6.5X) on increased mobile uncertainty. Buy.

As you can see above, Goldman has put a buy rating and $4.25 price target on this ASX share. This implies potential upside of 24% for investors over the next 12 months.

In addition, the broker is now forecasting fully franked dividends of 18 cents per share in FY 2024 and then 18.5 cents per share in FY 2025. Based on the current Telstra share price of $3.42, this will mean yields of 5.25% and 5.4%, respectively.

That's a total potential return of almost 30% according to Goldman.

Woolworths Limited (ASX: WOW)

Another ASX share that has been sold off (down 18% year on year) and could be in the buy zone now is supermarket giant Woolworths. Investors have been selling its shares due to concerns over market share losses and regulatory risks.

Goldman isn't fazed by either and thinks investors should be snapping up Woolworths' shares while they are undervalued. It said:

WOW is the largest supermarket chain in Australia with an additional presence in NZ, as well as selling general merchandise retail via Big W. We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.

Goldman has a buy rating and $39.40 price target on its shares. This suggests potential upside of almost 26% for investors.

In addition, the broker is forecasting fully franked dividends per share of $1.08 in FY 2024 and then $1.14 in FY 2025. Based on the current Woolworths share price of $31.33, this equates to dividend yields of 3.45% and 3.6%, respectively. Once again, this brings the total potential return to almost 30%.

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 positions in and has recommended Goldman Sachs Group. 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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