Telstra Group Ltd (ASX: TLS) and Fortescue Ltd (ASX: FMG) shares are both popular investments due to their blue-chip share status and large dividends.
Telstra is Australia's leading telecommunications business, while Fortescue is one of the largest iron ore miners in the world.
Let's compare these companies based on several different factors, including respective growth plans, dividend yields, and valuations.
Growth plans
As a commodity miner, Fortescue doesn't have much control over the iron ore price, so a large part of its profit generation is uncontrollable and unpredictable. It's affected by supply and demand, with China buying up the bulk of Australia's iron ore. Some investors may want more certainty.
In terms of growth plans, Fortescue is investing in several green energy areas, such as green hydrogen, green ammonia, high-performance batteries, and battery software. However, it recently announced job cuts and an end to its 2030 green hydrogen production goal. The company continues to invest in its mining and exploration operations.
Telstra is investing in growth areas like 5G and cybersecurity, which could deliver the next stage of its earnings growth. In the meantime, core earnings are getting a boost from regular price increases. The company recently announced mobile price rises for FY25, which could boost revenue numbers further.
Dividend yield
While not the most critical criterion, the dividend yield can provide investors with cash returns during their investment holding period.
As an ASX iron ore share, Fortescue typically offers a high dividend yield because of its low earnings multiple and relatively high dividend payout ratio.
According to the forecasts on Commsec, Fortescue is projected to pay an annual dividend per share of $1.31 in FY25 and 94 cents per share in FY26. This translates into forward grossed-up dividend yields of 9.2% and 6.6%, respectively.
Meanwhile, owners of Telstra shares are projected to receive annual dividends per share of 19 cents in FY25 and 20 cents in FY26. This would translate into grossed-up dividend yields of 7% and 7.4%, respectively.
On this score, while Fortescue may pay the bigger passive income over the two years, the Telstra dividend is headed in the right direction.
Valuation
The lowest price/earnings (P/E) ratio isn't necessarily the best choice for an investment between Telstra shares and Fortescue shares.
However, it can give an indication of the price we're paying for the company's profit in the short term. The direction of earnings is also an important part of the investment considerations.
According to Commsec, Telstra is expected to generate earnings per share (EPS) of 18.7 cents in FY25 and 20.8 cents in FY26. This suggests the Telstra share price is valued at under 21x FY25's estimated earnings and under 19x FY26's estimated earnings. We can also see the profit is projected to increase in the right direction, partly thanks to those mobile price rises.
The forecasts on Commsec suggest Fortescue could make an EPS of $1.95 in FY25 and $1.78 in FY26. This suggests the Fortescue share price is valued at 10x FY25's estimated earnings and 11x FY26's estimated earnings. This comes as Fortescue invests in its green energy projects, and it could see a lower iron ore price compared to recent years.
In my opinion, Telstra could be the better medium-term bet because its core earnings are rising and subscriber numbers are also growing. If the iron ore price fell to a cyclical low, Fortescue could be a contrarian opportunity, but I don't think we're at the bottom yet.
