The Australian share market is one of the more generous in the world.
For example, the average dividend yield on the ASX 200 index is usually in the region of 4%.
As a comparison, the average yield on Wall Street's S&P 500 index is just 1.2% at the time of writing.
And while you could argue that Wall Street has it right and the money would be better reinvested by companies rather than paid out as dividends, don't tell that to passive income investors.
They are the big winners from the tendency of ASX shares to payout a large portion of their earnings to shareholders each year.
Speaking of which, what would happen if I bought 1,000 Telstra Group Ltd (ASX: TLS) shares? Would I pull in a nice amount of passive income? Let's do some calculations and find out.
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Buying 1,000 Telstra shares
Firstly, if I wanted to buy 1,000 Telstra shares, I would need precisely $4,000 to do so based on its current share price.
Now, let's see what analysts are expecting the telco giant to pay out to shareholders over the next 12 months.
According to a recent note out of Bell Potter, its analysts believe that Telstra will increase its fully franked dividend by 1 cent per share to 19 cents per share in FY 2025.
If this were to prove accurate, it would mean that 1,000 Telstra shares would pull in $190 of passive income.
Should you invest?
Bell Potter thinks investors should be buying shares today. The broker has a buy rating and $4.30 price target on them.
This would turn my $4,000 investment into $4,300 before dividends and approximately $4,500 including them.
Commenting on its buy rating, the broker said:
We have lowered the discount we apply in the PE ratio valuation from 15% to 10% due to the good [FY24] result, soft upgrade to guidance and potential material uplift in FCF in FY26. There are no other changes to the key assumptions in our other valuations.
The net result is a 2% increase in our PT to $4.30 which is a 9% premium to the share price and we maintain our BUY recommendation. We believe the stock looks reasonable value on an FY25 PE ratio of c.20x when all of the comps in the S&P/ASX 20 trade on >20x. We also believe the forecast fully franked yield of 4.8% is attractive when CBA's forecast yield is now <4%. The yield is comparable, however, to the other banks but Telstra's dividend is expected to grow whereas the banks are not so much.
