The ASX dividend stock Telstra Group Ltd (ASX: TLS) is one of the most appealing businesses for passive income, in my view.
It doesn't have the biggest dividend yield, and I'm not expecting a huge amount of dividend growth in the coming years. However, the metrics that it does provide are compelling to me.
Numerous ASX dividend shares are exposed to cyclical forces or the broader economy, such as miners or banks, which can result in dividend impacts.
For example, names like Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), and Commonwealth Bank of Australia (ASX: CBA) could decide to reduce their dividends in the future if the economy goes through difficulty.
ASX mining shares BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Ltd (ASX: FMG) have had to reduce their payouts following reductions in the iron ore price.
For me, Telstra is a more appealing pick for a few different reasons.
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Defensive earnings
Telstra is the leading telecommunications business in Australia, with a strong market position, the widest network coverage and appealing spectrum assets.
Most Australian households and businesses seem to place a high importance on having an internet connection, whether that's through their mobile or the home broadband connection. As a utility business, I think it offers very defensive earnings.
In the event of an economic downturn, I think Telstra's earnings would hold up well.
I'm more willing to pay a higher price/earnings (P/E) ratio for a company's profit if there's a high degree of confidence that the profit expectations will become reality. I'd say Telstra's earnings are more defensive than the major ASX bank shares and ASX mining shares.
The ASX dividend stock is growing
Telstra already has a substantial market share in the country, so I'm not expecting it to gain much more in terms of market share, but ongoing growth of the sector could help the company's overall profit.
In FY25, the business delivered earnings per share (EPS) growth of 3.2% to 19.1 cents and cash EPS growth of 12% to 22.4 cents.
Its key business, the mobile segment, continued to deliver growth for shareholders. Mobile income grew 3% to $11 billion, and operating profit (EBITDA) climbed 5% to $5.3 billion. This was driven by sustained average revenue per user (ARPU) growth and 0.6% growth of mobile handheld users.
I think the business has a compelling outlook, with population growth and ongoing digitalisation of Australia being strong tailwinds for longer-term growth.
Pleasing dividend credentials
The profit growth for the business helped deliver dividend per share growth of 5.6% to 19 cents per share in FY25.
At the time of writing, it has a grossed-up dividend yield of 5.6%, including franking credits. While that's not the most significant yield on the ASX, I think it's an appealing payout for such a defensive business, and I'm expecting dividend growth in the coming years.
I predict the grossed-up dividend yield, including franking credits, to be at least 5.75% in FY26, using the valuation at the time of writing. It could be even higher if the dividend increase is more than a slight hike.
