Owning Telstra Group Ltd (ASX: TLS) shares could be a smart move over the coming years, with analysts expecting the business to deliver rising profits.
I view growing profits as the most important factor for delivering a higher share price and a growing dividend. If a company's profit isn't rising, then why would the market want to send the Telstra share price higher over the long term?
Additionally, in terms of a company's financials, higher earnings are required to sustainably fund larger dividend payments. That's why I think it's very important for passive income investors to focus on the likely direction of the net profit first, before thinking about the dividend yield.
With that in mind, let's take a look at where Telstra's net profit is projected by analysts to go over the next few years.
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HY26 earnings recap
The telco business recently reported its FY26 half-year results, which included a 4% increase in mobile revenue to $5.8 billion and a 4% increase in mobile operating profit (EBITDA) to $2.7 billion.
Mobile service revenue increased 5.6% thanks to growth in handheld price changes and wholesale user growth.
In terms of average revenue per user (ARPU) growth, there was a 4.8% rise for postpaid handheld, 14.7% for prepaid handheld, and 7% for wholesale. Mobile handheld users increased by 135,000 in total, with a 16,000 rise in postpaid retail, a 21,000 rise in prepaid retail, and a 98,000 increase in wholesale.
The above strength helped the business deliver 0.2% total income growth to $11.8 billion, EBITDA growth of 4.7% to $4.4 billion, and net profit growth of 9.4% to $1.1 billion. Cash earnings per share (EPS) increased by 19.7% to 14 cents and the dividend per share was hiked by 10.5% to 10.5 cents.
Broker UBS noted that, with the result, Telstra continued to demonstrate the strength of its mobile business and its general cost control, despite other segments being generally weaker.
UBS remains constructive on the growth outlook for the business and continues to forecast that cash operating profit (EBIT) can grow at a compound annual growth rate (CAGR) of 5% over the next four years, thanks to CPI-linked mobile price increases and continued cost control through AI productivity savings.
However, the fixed enterprise, active wholesale, and international are weaker than what UBS was expecting, though cost control is helping operating profit.
FY26
UBS said that it remains constructive on margin expansion at Telstra, with near-term initiatives "likely to see cost growth limited to 1.5% CAGR over the next four years".
On cost growth, UBS noted that Telstra recently highlighted up to 650 redundancies (around 1.5% of the Telstra workforce), benefits from the consolidation of software and IT providers, and a joint venture with Accenture to help cost reduction benefits, as well as faster product-to-market times.
The broker UBS said it's forecasting the group EBITDA margin will expand by an average of 60 basis points (0.60%) per year from FY26 to FY30, driven by ongoing efficiencies as AI adoption increases.
Taking all of the above into account, UBS predicts that Telstra could generate a net profit of $2.3 billion in FY26. Growth is usually a long-term positive for Telstra shares.
FY27
As the above commentary suggests, the business is projected by UBS to see a rising EBIT margin in the coming years. UBS predicts the EBIT margin could climb to 18% in FY27, showing increasing profitability from FY26's projected EBIT margin of 17.4%.
The 2027 financial year is forecast to see a net profit of $2.45 billion.
FY28
Profitability could increase even more in the 2028 financial year, which could see the business report a net profit of $2.6 billion on an EBIT margin of 18.7%.
FY29
The FY29 profit could get even better for owners of Telstra shares, with the EBIT margin projected to increase to 19.5%, helping net profit rise again to a projected $2.85 billion.
FY30
The last year of this series of projections could mean the business sees an increase in profitability to $3.2 billion in FY30. The EBIT margin could increase to 20.8%, showing the business is expected to make more money from its asset base.
While Telstra is rated neutral (not a buy or sell) by UBS, with a price target of $5.20, the broker said it is the preferred business exposure in the Australian telecommunications space.
