Telstra Group Ltd (ASX: TLS) shares may not be the most popular holding by retirees, but I think they're a great choice for a number of reasons.
For starters, the ASX telco share isn't operating in an ultra-competitive sector like banking, nor is its profits linked to a volatile commodity price. I believe the outlook for good earnings growth is positive and the possibility of good dividends is even stronger.
Let's take a look at what makes the business so appealing.
Appealing earnings profile
Retirees may be tricked into thinking that a high dividend yield is always an attractive thing. But, there's sometimes a danger that the profit of a business could go backwards significantly, hurting both the share price and the payout potential.
Telstra went through a rough patch several years ago as the NBN took control of the cable infrastructure, substantially hurting the company's profit margins on broadband customers.
However, now that the transition has finished, Telstra's earnings look much more defensive, and there's growth too. Households and businesses seem to place a high importance on having an internet connection, giving Telstra resilient earnings.
The company is regularly winning new subscribers and achieving a higher level of revenue from each of its customers, helping profit margins due to the operating leverage as it spreads the costs of its network across more users.
In FY25, underlying earnings per share (EPS) grew 3.2% and the cash EPS jumped 12%.
As the country becomes more connected with more devices, I expect Telstra's earnings can noticeably rise in the coming years.
Large dividend yield
Receiving cash into the bank account with dividends is probably a key focus for retirees, and it's one of the important ways that owners of Telstra shares are being rewarded.
Telstra grew its annual dividend per share in FY22, FY23, FY24, and FY25.
The 2025 financial year saw the company pay an annual dividend of 19 cents per share. That equates to a grossed-up dividend yield of 5.5%, including franking credits. That's not the biggest yield on the ASX, but combine that with further growth in the coming years, and it's a great starting point.
Predictions for more passive income growth
If the company is able to grow its profits, then the payouts could continue to rise as well.
Telstra's earnings are projected to continue rising, and the dividend could become much larger.
The broker UBS is projecting Telstra could pay an annual dividend per share of 21 cents in FY26, which would be a grossed-up dividend yield of 6.1%.
UBS forecasts the annual dividend per share could rise in every subsequent year until it reaches 30 cents in FY30. That'd be a grossed-up dividend yield of 8.7%, including franking credits. I think it's a very appealing choice for retirees.
