I'd describe Telstra Group Ltd (ASX: TLS) as an ASX dividend stalwart, not just because it's a large business that pays a dividend, but because it has a very promising outlook too.
I only invest in businesses that I believe have a promising future, or else there could be a risk of value destruction of wealth.
Telstra went through a rough patch after the switch of the telecommunications infrastructure to NBN, but now it's coming through on the other side with the financials going in the right direction.
I think this is a good time to invest in the business for the long-term because of a few different reasons.
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Strong and important market position
Telstra is the leading telecommunications business in Australia, with the strongest spectrum assets, the most subscribers and the widest network coverage.
Telecommunications is an essential service to many Australian households and businesses, meaning they're likely to continue paying for the service, even if there's an economic downturn.
Telstra's market position in Australia doesn't seem in danger. The company continues to invest in its mobile network, ensuring its 5G network remains superior to competitors and allow it to generate pleasing profitability from its assets with a higher average revenue per user (ARPU).
Its network and spectrum give the business a strong economic moat.
ASX dividend stalwart credentials
There are a couple of key reasons why the business is so appealing for dividend income.
Firstly, it offers investors a pleasing dividend yield. In FY25, it paid investors an annual dividend per share of 19 cents. That means it has a trailing grossed-up dividend yield of 5.5%, including franking credits.
Secondly, it's delivering dividend growth, which is pleasing to see because inflation eats away at the value of a dollar. It increased its annual dividend per share in FY22, FY23, FY24 and FY25.
The ASX dividend stalwart is expected by the broker UBS to pay an annual dividend per share of 21 cents in FY26. That translates into a forward grossed-up dividend yield of 6.1%, including franking credits.
By FY30, it could pay a grossed-up dividend yield of 8.75%, including franking credits, according to the forecast from UBS.
Earnings growth
While Telstra's payouts may be appealing for income investors, it can also be appealing to all investors because of its potential earnings growth in the coming years.
The business can grow earnings significantly from here as it invests further in its infrastructure to unlock more profit. Plus, the business is winning more subscribers and seeing longer-term growth of its average revenue per user (ARPU).
It's also compelling that further improvements in the 5G network could mean more households can switch to a wireless home broadband connection, giving Telstra a much stronger profit margin from that connection.
UBS forecasts Telstra's net profit could rise from $2.47 billion in FY26 to $3.47 billion in FY30, a possible rise of 40%. Earnings growth can help deliver share price growth for the ASX dividend stalwart.
