Analysts are always on the lookout for ASX dividend shares for income potential.
Businesses that pay dividends to investors may be options to consider for their yields. However, the valuation also needs to make sense for the analysts to call it a buy.
With that in mind, the two businesses in this article are rated as buys, with compelling potential income:
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Telstra Corporation Ltd (ASX: TLS)
Telstra is the leading telecommunications business in Australia. An acquisition called Digicel Pacific has turned it into a leader in other countries as well, including PNG, Nauru, Samoa, Tonga and Vanuatu. It also has a position in the Fiji market.
It's currently rated as a buy by the broker Ord Minnett with a price target of $4.60. That is approximately 10% higher than where it is right now. The broker thinks that Telstra is going to pay a dividend of $0.16 per share in both FY22 and FY23, which translates to a grossed-up dividend yield of 5.5%.
One of the things that Ord Minnett is focused on is the strength that Telstra has with its network as well as its ongoing plans to keep investing.
When Telstra's T25 strategy was released, it said that part of the plan was to extend its 5G network coverage to 95% of the population.
The ASX dividend share's regional coverage is to be expanded with 100,000 square kilometres of new 4G and 5G coverage. Telstra Plus members are targeted to grow to 6 million by FY25.
Telstra also said that it's gaining greater access to tower assets with 250 new stores and 700 additional tenancies.
Other parts of the Telstra plan includes cutting another $500 million of fixed costs from FY23 to FY25. Also, it wants to achieve a compound annual growth rate (CAGR) in the high teens to FY25 for earnings per share (EPS).
Nine Entertainment Co Holdings Ltd (ASX: NEC)
Nine is a large media business with its TV channels, newspapers and Stan video streaming service.
It's currently rated as a buy by the broker UBS, with a price target of $3.90. That's a potential upside of around 40%, if the broker is right.
Nine is continuing to see progress with different parts of the business.
The ASX dividend share recently gave a trading update at its annual general meeting. In the first quarter, Nine said that its digital subscription revenue grew 10%, as well as receiving the first instalments from Google and Facebook. Stan continues to see subscription growth but it's still profitable. Video on demand continues to see growth – 9Now revenue in the first half is expected to be 45% higher.
Overall, the FY22 first half earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to grow by around 10% year on year.
UBS thinks the Nine share price is valued at 16x FY22's estimated earnings with a grossed-up dividend yield for the current financial year of 6.1%.
