Telstra Group Ltd (ASX: TLS) is one of the most widely known companies in Australia, and thus one of the most famous stocks on the Australian share market. This ASX 200 telco has been listed on the ASX for decades now, and is a staple holding of many Australian investors' share portfolios.
I have long touted the potential benefits of owning Tesltra shares as part of an income-focused portfolio. However, I am not an income investor, and I do not own Telstra shares myself at the present time.
I did own the company for a number of years. But I offloaded my Telstra position a while ago, due to my belief that there were better opportunities that better suited my investment goals elsewhere.
However, I still think Telstra is a high-quality company and a potentially lucrative investment. It is a dominant mature business, the clear market leader in its field and the possessor of a wide economic moat.
So what price would I buy Testlra shares again and add them to my portfolio?
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At what price would I buy Telstra shares?
To answer this, let's look at a few metrics.
Firstly, Telstra's earnings. Between FY2020 and FY2025, Telstra grew its earnings per share (EPS) from 15.3 cents to 18.9 cents per share. That's a compounded annual growth rate of 4.32% over those five years. Now, there's no guarantee that Tesltra will be able to continue to hit that metric going forward. But I think it's a solid baseline to work with.
If it is the case that Tesltra will be able to keep its EPS growth at 4.32% over the coming five years, we can reasonably assume that its share price will grow by a similar rate. Share prices tend to follow earnings growth over time.
That growth rate is decent. But it is not enough in itself to make Tesltra a market-beating investment. For context, the broader Australian share market has returned about 9.2% per annum over the past decade. For Telstra to outperform that, we would need its dividends to make up the difference.
Some quick maths will tell you that we would need Telstra shares to offer a yield of about 5% to put it into a market-beating position.
At the current Tesltra share price of $4.80 (at the time of writing), it is offering a dividend yield of just under 4%. That comes from the two fully-franked dividends the telco forked out last year. Each was worth 9.5 cents per share.
If Telstra doles out that amount again in 2026, its shares would need to trade at approximately $3.80 each to offer a forward yield of 5% today. That's probably about the price I would feel comfortable buying Tesltra shares at. Obviously, that's a long way from where the shares stand today. As such, I probably won't be adding Telstra back to my portfolio anytime soon. Even if I still think it's a great buy for income investors looking for reliable passive income.
