Telstra Group Ltd (ASX: TLS) shares are a popular option for Aussie investors.
But are the telco giant's shares a good one right now? According to Goldman Sachs they are.
The broker has named a number of reasons why it thinks investors should be snapping up the company's shares for the year ahead.
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Four reasons to buy Telstra shares
The first reason that Telstra could be a good option for investors is its low risk earnings and dividend growth. Particularly in the current uncertain economic environment. It said:
Telstra is the incumbent telecom operator in Australia. We believe the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned through its mobile business, is attractive.
Another reason to buy Telstra shares could be its potential to unlock significant value through asset divestments. This includes both its InfraCo Fixed assets and its NBN payment stream. Goldman explains:
We also believe that Telstra has a meaningful medium term opportunity to crystallise value through commencing the process to monetize its InfraCo Fixed assets – which we estimate could be worth between A$22-33bn. Although there is some debate around the strategic benefits, we see a strong rationale for monetizing the recurring NBN payment stream, given its inflation-linked, long duration cash flows could be worth A$14.5bn to A$17.9bn, with no loss of strategic benefit.
What else?
Goldman also believes that Telstra's shares look good value when adjusting out its NBN recurring payments. It notes:
Although at a headline level, Telstra valuation appears relatively full (vs. peers and vs. 10Y yield), we note: Adjusting out NBN recurring payments (a unique asset), Telstra trades at a much more compelling multiple.
Finally, the broker highlights the attractive dividend yield on offer with its shares as a reason to buy. It concludes:
Although its yield spread is compressed vs. history, when factoring dividend growth this is more attractive. Hence we rate Telstra Buy.
Goldman is forecasting fully franked dividends per share of 19 cents in FY 2025, 20 cents in FY 2026, and then 21 cents in FY 2027. Based on its current share price of $4.03, this equates to yields of 4.7%, 4.95%, and 5.2%, respectively.
The broker currently has a buy rating and $4.50 price target on its shares. This implies potential upside of over 11.5% for investors over the next 12 months.
And including dividends, the total potential return stretches to over 16%.
