Telstra Group Ltd (ASX: TLS) shares are often viewed as a good choice for passive income. I think there are actually a few good reasons to conclude that it is one of the most exciting ASX dividend stock ideas within the S&P/ASX 200 Index (ASX: XJO).
As shown in the chart below, the Telstra share price has been underperforming recently. It has decreased over the past year and remained relatively flat in 2024. However, there has been a recent recovery, which is beneficial for shareholders.
While I'm not going to say that Telstra is the best overall business in the ASX 200, I think it could be argued that the ASX telco share may be exactly what some income-focused investors are looking for.
What I look for in ASX dividend stocks
In my opinion, there are three different factors that can make a dividend-paying business appealing for passive income.
First, a good dividend yield. I believe an ASX dividend stock needs to offer a certain level of yield to be attractive to income-seekers.
Second, dividend stability. If we're investing for dividends, I want to have a high level of confidence that good dividends are going to keep flowing even during difficult economic times.
Third, dividend growth. Inflation can erode the value of a dollar, so we want to see passive income grow over time. Dividend growth should mean earnings are growing, which may translate into share price/capital growth.
For me, Telstra ticks the box on all three fronts.
Why Telstra shares seem like an appealing pick
Using the forecasts from the broker UBS, Telstra is projected to pay an annual dividend per share of 18 cents in FY24, 19 cents in FY25, and 21 cents in FY26. Those projections translate into forward grossed-up dividend yields of 6.5%, 6.9%, and 7.6%.
So, the ASX dividend stock is projected to pay good yields, and it's likely to see growth.
I believe Telstra is a defensive income option because most households and businesses have an internet connection – it's seen as essential these days for work, communication, and so on. It's a fairly low-cost service, so I think most customers would hold onto their telecommunications connection, even in a downturn.
Rising mobile subscriber numbers and increasing mobile prices allow the business to keep growing its profit (and dividend). That combination helps margins because more subscribers are spread across the same telco infrastructure.
UBS projects Telstra's net profit after tax (NPAT) to rise by 24% between FY24 and FY26, reaching $2.54 billion.
In my opinion, Telstra can offer more dividend stability than volatile dividend payers like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Ltd (ASX: FMG).
The ASX telco share can offer a stronger dividend yield than names like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Wesfarmers Ltd (ASX: WES).
I'd suggest Telstra can deliver a stronger dividend growth rate than names like APA Group (ASX: APA), Coles Group Ltd (ASX: COL) and Sonic Healthcare Ltd (ASX: SHL).
Telstra is not perfect, and there are plenty of good ASX dividend stocks out there. However, I believe Telstra is one of the top passive income picks inside the ASX 200 for the foreseeable future.
