How I'd generate a $10,000 second income from Telstra shares

Hold the phone! Here's how you can earn a $10,000 second income with this telco giant's shares…

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A young woman in a red polka-dot dress holds an old-fashioned green telephone set in one hand and raises the phone to her ear representing the Telstra share price and the opportunity for investors in FY23

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Key points

  • Telstra is a popular option for income investors
  • Each year the telco giant rewards its shareholders with dividends
  • If you own enough shares, you could generate $10,000 of income from them

When it comes to generating an income on the Australian share market, Telstra Group Ltd (ASX: TLS) shares are a popular choice for investors. Especially now the NBN rollout is complete and this major earnings headwind has dissipated.

It isn't hard to see why Telstra is a popular choice for income investors. The company has an exceptionally strong market position, positive inflation exposure, and defensive qualities.

In respect to the latter, I'm sure I'm not alone in saying that my phone would be one of the very last things I would give up if times were hard. This bodes well for the company in the current uncertain economic environment.

Combined with its new growth-focused T25 strategy targeting mid-single digit underlying EBITDA and high-teens underlying earnings per share compound annual growth rates over the medium term, I believe Telstra shares are an attractive option for income investors.

But what would it take to generate passive income of $10,000 from Telstra shares?

Generating $10,000 of income with Telstra shares

According to a note out of Goldman Sachs, its analysts are expecting Telstra to pay a 17 cents per share fully franked dividend in FY 2023.

This will be up slightly from the 16.5 cents per share dividend it paid in FY 2022. And based on the current Telstra share price of $4.11, this equates to a 4.1% dividend yield.

So, if you want to generate $10,000 of passive income from Telstra shares, you'll need to own approximately 58,800 shares. That will require an investment of just under $242,000.

While this may not be doable for most readers, don't let that put you off making it a longer-term goal.

Growing your portfolio

To grow your portfolio to $242,000, you could look at making relatively modest monthly investments into high-quality ASX shares over a number of years.

For example, if the market were to generate an average return of 10% per annum for the foreseeable future, an investment of $500 a month into a portfolio of quality ASX shares would grow to be worth $242,000 after approximately 16.5 years if it matched the market return.

Whereas if you can invest $1,000 a month, the same annual return would get your portfolio to the target level in just over a decade.

And while a 10% per annum share market return is far from guaranteed, it is in line with historical levels, so certainly a possibility!

I believe the key to success is settling on a strategy, buying quality shares, and sticking to the plan through thick and thin.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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