Investing at the current Telstra Group Ltd (ASX: TLS) share price could mean investors get a solid level of dividends and may see long-term capital growth because of the rising underlying earnings.
Telstra is the leading telecommunications business in Australia and it's putting this market leadership to its advantage this decade with regular price increases.
Having the leading mobile network with the widest coverage gives the business the ability to attract the most subscribers.
In recent years, the business has built up its dividend payments for shareholders, which is one of the main reasons why the business is an attractive options for passive income.
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Rising dividends
I've been impressed by how regularly the business has hiked its dividend over the last five years.
For example, in the FY26 half-year result, Telstra decided to hike its dividend per share by 10.5% to 10.5 cents per share. That's a great level of growth for a company of Telstra's size, in my view.
The business has steadily increased its dividend each financial year since it started increasing its annual payout again in FY22.
If Telstra increases its final dividend to 10.5 cents per share in a few months, its annual dividend per share will be 21 cents. That would translate into a dividend yield of 3.9% excluding franking credits and approximately 5.4% including franking credits.
A dividend yield of around 5% is not exactly the biggest yield around, but it's a very competitive passive income yield compared to what term deposits are offering right now.
I wouldn't buy Telstra shares just for the dividend – we need to take into accounts its earnings growth potential and valuation.
Telstra share price valuation and earnings growth outlook
The FY26 half-year result revealed solid growth on the earnings side of things.
Telstra reported that its mobile handheld users rose by 135,000 in the first half of FY26, along with sustained average revenue per user (ARPU) growth across all categories, brands and segments. This helped the business deliver mobile operating profit (EBITDA) growth of 4% to $2.7 billion.
The company's earnings before interest and tax (EBIT) grew 9.2% to $2 billion and earnings per share (EPS) climbed by 11.2% to 9.9 cents. Excitingly, cash EPS jumped 19.7% to 14 cents.
Given the business' continued investment in its 5G network to help it stay ahead of rivals, I think its value to customers and revenue will continue to increase.
Australia is becoming increasingly digital and reliant on the internet in some way, so I believe Telstra's earnings are both defensive and growing.
The Telstra share price is not cheap – according to the projection on Commsec it's priced at 27x FY26's estimated earnings, though the cash earnings multiple is likely to be materially lower. I'd be happy to buy it as a defensive, passive income pick for the long-term today.
Overall, it's not compelling value today. There could be even better ideas out there.
