Over the next few years, the ASX dividend stock Telstra Group Ltd (ASX: TLS) could further cement itself as a leading passive income option with a large dividend yield.
When I think about which S&P/ASX 200 Index (ASX: XJO) shares could pay large and growing dividends in the coming years, Telstra could be one of the top options in my opinion.
Some of the businesses offering consistently large yields right now (such as real estate investment trusts (REITs)) may not be able to grow payouts in the next few years as much as Telstra because of (usually) slower earnings growth. Cyclical companies with a current high payout could possibly see a reduction in any given year.
I think Telstra shares could be among the most attractive options for dividends.
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Big payout projected
The broker UBS is optimistic about where the Telstra dividend could go in the next few years.
UBS believes Telstra's annual dividend per share could rise to 19 cents in FY25. That translates into a grossed-up dividend yield of 6.5% for the ASX dividend stock.
The broker thinks Telstra shareholders can benefit in the coming years from an increase in the mobile average revenue per user (ARPU), investments in AI to improve customer service, productivity and margins, and a reduction in the number of Telstra shares thanks to the $750 million share buyback.
The FY28 payout is projected to be much larger.
UBS is forecasting that Telstra's annual dividend payout could increase by 31% between FY25 to FY28, reaching 25 cents per share. This would represent a grossed-up dividend yield of 8.7%, including franking credits.
It's possible the FY28 payout may not be as good as that, but it's also possible the payout could be even better than expected.
Is the Telstra share price good value?
UBS certainly thinks the ASX dividend stock is good value, it has a buy rating on the telecommunications business with a price target of $4.50. A price target is where the broker thinks the share price will be trading in 12 months from the time of the investment call.
The broker is suggesting that the Telstra share price could rise by close to 10% from where it is today. Combined with a solid projected dividend, Telstra shares could outperform the ASX 200 in the next 12 months, with bigger dividends projected for future years.
