Owning Telstra Group Ltd (ASX: TLS) stock over the last five years has been a rewarding experience, marked by a rising Telstra share price and increasing dividends. After climbing more than 55% in the past five years, it's worth asking whether the ASX telco share is a buy today for the dividend yield.
After a difficult period in the second half of the 2010s, when the ownership of the wire infrastructure shifted to the NBN, Telstra has emerged from the COVID-19 period with earnings heading in the right direction.
The outlook for further profit growth appears promising, and passive income payments are expected to continue rising.
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Analysts predict more growth
In FY25, the company reported a total income growth of 0.7% to $23.6 billion and a rise in earnings per share (EPS) of 3.2% to 19.1 cents. Cash EPS increased by 12% to 22.4 cents, demonstrating strong underlying business growth. EPS is a key factor in determining the valuation of Telstra stock and the company's dividend yield.
Mobile service revenue climbed by 3.5%, with operating profit (EBITDA) climbing by 5% to $5.3 billion. This was driven by both the growth of mobile handheld users and sustained average revenue per user (ARPU) growth.
When the ARPU rises, it can drive margins higher because of the operating leverage of its financials. There was a 2.5% rise for postpaid handheld users, an 8.4% growth for prepaid handheld users, and a 5% growth for wholesale users.
Analysts at UBS predict that the company's EPS can climb from 19 cents in FY25 to 22 cents in FY26, suggesting an increase of roughly 15%. That would be an impressive rise if that happens.
UBS expects mobile revenue growth of 3% in FY26, although the broker is predicting slower subscriber growth now than it did before seeing the FY25 results.
The broker also projects the ASX telco share will generate cash earnings before interest and tax (EBIT) to climb by 9% to $4.7 billion. Pleasingly, the broker expects a rise in both the EBIT margin and return on invested capital (ROIC) in each of the years between FY26 and FY30.
Is the Telstra stock price a buy for the dividend yield?
UBS analysts are currently forecasting that Telstra could pay an annual dividend per share of 21 cents in the 2026 financial year (with further dividend increases in the coming years).
This means the company could deliver a cash dividend yield of 4.2% and a grossed-up dividend yield of 6%, including franking credits, in FY26.
The potential dividend yield is attractive to me for generating passive income; it's considerably better than what term deposits are currently paying.
In terms of potential share price growth for Telstra stock, UBS has a neutral rating on the ASX telco share, indicating there may be better opportunities for possible capital gains.
