The Telstra Group Ltd (ASX: TLS) share price and dividend could deliver impressive combined returns in the 2025 financial year, according to one leading broker.
UBS is one institution that thinks Telstra shares are a buy, and recently, there was a key reason for its optimism about Australia's largest telecommunications business.
Telstra recently announced that its mobile prices for prepaid and postpaid users would rise between $2 and $4 per month later this year.
This decision has strengthened UBS' view that the ASX blue-chip share is a longer-term opportunity.
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Strong market position helps price rises
UBS said regarding the mobile price that it was "pleasing" to see price rises that were above CPI inflation and that overall consumer churn intentions across the industry "remain stable (and low)", according to its research, even though consumers are expecting to pay more for their telco products over the next year.
The broker's research also suggested that customer churn is "likely confined to the more price-sensitive end of the market."
UBS believes there is scope for the telco industry's mobile average revenue per user (ARPU) to keep rising.
After this latest price rise by Telstra, UBS thinks the market is "not pricing in the ability for the industry to capture the majority of price rises recently announced, and are expecting a level of down-trading of plans by consumers."
The broker also believes there's potential upside if there's a faster-than-expected contribution from InfraCo's intercity fibre project and better-than-expected cost reductions beyond what is forecast for FY25.
UBS has pencilled in that Telstra's dividend can grow at a compound annual growth rate (CAGR) of 8% over the next three years thanks to the expected profit growth, which could see earnings per share (EPS) rise to 25 cents in FY27.
Potential 20% return from Telstra shares
According to UBS' forecasts, the Telstra share price is currently trading at under 22x FY25's estimated earnings.
UBS has a price target of $4.40 on the business, so the broker is suggesting the Telstra share price could rise by around 13% over the next 12 months.
The broker is also forecasting that Telstra could pay an annual dividend per share of 19 cents in FY25, which would translate into a fully franked dividend yield of around 5% and a grossed-up dividend yield of 7%. The grossed-up passive income and possible capital growth could lead to total gross returns of around 20%.
Whether a 20% return actually happens in FY25 is another matter, but it looks promising that profit can grow in FY25 thanks to the recently announced mobile price increase.
