Telstra Group Ltd (ASX: TLS) shares have been a mixed bag since they listed more than 25 years ago, as the chart below shows. Passive income investors may be wondering whether this is the right time to jump on the ASX telco share.
I've always said that an ASX dividend share needs to do more than just pay a dividend to be appealing.
Telstra has been paying dividends for many years, but only in the last few years has the company delivered payouts that are headed in the right direction.
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Dividend growth
The business has steadily increased its dividend over the last few years, whereas the five years before 2022 saw either cuts or stable payouts.
High inflation was a significant problem for the Australian economy a few years ago, highlighting to me the importance of investments that can grow their payouts. It's good to see payouts rise so that we get more cash flow and offset the impact of inflation on the value of a dollar.
In FY25, the ASX telco share grew its annual payout by 5.6% to 19 cents per share.
I also think it's integral that an ASX dividend share has a good dividend yield. The FY25 payout translates into a grossed-up dividend yield of around 5.5%, including franking credits.
While that's not the biggest dividend yield around, I think it's a strong payout level considering the business is growing the dividend and delivering rising earnings.
I think the FY26 payout will be at least 19.5 cents per share, which would translate into a grossed-up dividend yield of at least 5.6%, including franking credits.
Is this a good time to invest in Telstra shares for passive income?
We've established that the dividend yield is appealing, but the appeal of the Telstra share price valuation is a different question.
I want to see the business grow its earnings over time. FY25 was a decent year for the company, with underlying earnings per share (EPS) increasing 3.2% to 19.1 cents and cash EPS climbing by 12% to 22.4 cents.
The key division for Telstra is its mobile segment, which made 61% of reported operating profit (EBITDA) in FY25. This division saw operating profit (EBITDA) increase 4.7% to $5.26 billion thanks to a 3.5% rise in mobile services revenue.
Telstra is seeing an ongoing increase in both total mobile handheld users (including wholesale) and the average revenue per user (ARPU). It's benefiting from having the strongest mobile network and implementing price rises, which help offset the impacts of inflation and also fund larger passive income payouts.
The telco points out that trends indicate that demand for connectivity will "only grow". I believe this bodes well for further Telstra subscriber growth, higher demand for its 5G network, and potentially further increases in the ARPU.
According to the forecast on Commsec, it's trading at 25x FY26's estimated earnings. While it's not the cheapest business on the ASX, I think the outlook for ongoing mobile segment profit growth is compelling, which can fund higher passive dividend income in the coming years. If 5G-powered home internet becomes more prevalent, that could have a particularly pleasing effect on Telstra's profit margins.
