Owning Telstra Group Ltd (ASX: TLS) shares has been a smart pick for passive income over the last few years. I think it's such an attractive business that it could replace the Age Pension.
Of course, I wouldn't just own one stock to rely on instead of the Age Pension. It's a good idea to be diversified.
In my view, Australia is one of the best places in the world to be a retiree, particularly with the safety net of a generous Age Pension.
Currently, the maximum annualised Age Pension amount that an Australian retiree can receive is around $32,180 for a single person.
We're going to run through why Telstra shares are an attractive pick for dividends and how many would be needed to generate enough income to match the Age Pension.
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Dividend potential
In an era of elevated inflation, I believe businesses that grow their payouts faster than inflation are particularly attractive.
In the Telstra FY26 annual result, the board of directors decided to hike the annual payout by 10.5% to 21 cents per share. That's a large increase, in my book.
Between FY21 and FY26, it increased its payout by 31.25%.
I calculate that the FY26 payout translates into a dividend yield of 4.3% excluding franking credits and 6.0% including franking credits. That's a more appealing dividend yield than Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP), which both have dividend yields below 6% at the time of writing.
The forecast on Commsec suggests owners of Telstra shares could receive an annual dividend per share of 22 cents per share. That projection implies a year-over-year increase of 4.75% for the annual dividend.
If Telstra does pay 22 cents per share in FY27, that would be a dividend yield of 4.5% excluding franking credits and 6.2% including franking credits.
I think the business can deliver dividend growth based on Telstra's FY27 projection of cash EBIT (operating profit) of between $4.75 billion and $4.95 billion. That represents potential year-over-year growth of between 1.9% and 6.22%.
How many Telstra shares would it take to match the Age Pension?
I've already mentioned that the maximum Age Pension that a single person can receive is around $32,180.
To receive that much in dividend income from the ASX telco share in FY27 with a payout of 22 cents per share, an investor would need 146,273 Telstra shares to generate $32,180 of dividend cash. That'd be a cost of $718,200.
If we include franking credits as part of the dividend income goal, an investor would need 105,558 Telstra shares. This would be a cost of $518,290.
I think Telstra's a solid choice given its consistent dividend growth and a sizeable dividend yield. However, I'd buy additional ASX shares alongside Telstra in a dividend portfolio.
