The Telstra Group Ltd (ASX: TLS) share price could be an appealing buy for a few different reasons. I believe the market is undervaluing the attractive and defensive nature of the ASX telco share's earnings.
Access to the internet seems to be a necessity for many households and businesses these days. With a high level of base demand, this helps Telstra generate consistent profit.
But the appeal of the business is much more than just stable profits.
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Rising revenue
I believe a key engine that drives a business forward financially is revenue growth.
Telstra is growing revenue in a few different ways, but its mobile division continues to be the key performer because it generates the biggest slice of revenue. In FY25, the mobile division saw income growth of 3% to $11 billion, thanks to a combination of a higher average revenue per user (ARPU) and more subscribers.
The mobile performance helped the underlying overall income rise by 0.7% to $23.6 billion.
Growing net profit
More revenue helps drive the business' profit higher, particularly because it spreads more users across the same telco infrastructure, providing Telstra with operating leverage.
While Telstra's underlying revenue only increased by 0.7%, its net profit for shareholders grew 2.6%, underlying earnings per share (EPS) increased 3.2%, and cash EPS rose 12%. Profit is the key driver of the Telstra share price, in my view.
Mobile wasn't the only segment that saw operating profit (EBITDA) growth in FY25. The fixed customer and small business (C&SB) segment saw EBITDA rise $109 million to $363 million, fixed enterprise EBITDA grew $103 million to $239 million, and InfraCo fixed saw EBITDA climb $54 million to $1.8 billion.
Telstra benefited in multiple segments from price rises, boosting profit at its key businesses.
I expect FY26 could see further profit growth because the business recently increased mobile prices for customers, even though broader inflation in Australia has reduced.
Increasing dividend
Companies use the profits they generate to pay dividends to shareholders.
In the last few years, Telstra's net profit has been rising, which has helped fund a larger payout for shareholders.
While dividends won't necessarily make up the majority of returns over time, they can boost total returns and provide income-focused investors with the cash flow they are looking for from a resilient business.
In FY25, Telstra grew its annual dividend per share by 5.6% to 19 cents. At the current Telstra share price, that translates into a grossed-up dividend yield, including franking credits, of approximately 5.5%.
As the company's net profit grows, I believe this could lead to even higher dividends.
