There are a lot of options for income investors to choose from on the Australian share market.
One of the most popular options out there is Telstra Group Ltd (ASX: TLS).
The telco giant features in countless portfolios and super funds across the country. This is thanks largely to its defensive earnings and the Telstra board's decision to regularly share a good portion of these profits with its shareholders each year in the form of dividends.
For example, in FY 2023 Telstra's solid financial performance enabled the board to resolve to pay dividends of 17 cents per share, returning $2 billion to shareholders.
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But what is next for the Telstra dividend?
Telstra recently released an update on its guidance for FY 2024 and FY 2025.
In respect to the former, Telstra has reaffirmed its earnings guidance for FY 2024. It continues to expect underlying EBITDA in the range of $8.2 billion to $8.3 billion.
However, it introduced guidance for FY 2025 which was short of expectations. Telstra is guiding to underlying EBITDA of $8.4 billion to $8.7 billion. A key driver of this growth will be a $350 million cost reduction plan.
Commenting on next year's guidance, Goldman Sachs said:
Overall mid-point of guidance of $8.55bn is disappointing given we previously noted our views that $8.6bn was very achievable. Although the differences vs. GSe are not clear, it potentially relates to: (1) Timing of Enterprise restructure; or (2) Lower than CPI postpaid mobile pricing.
In light of this, it may not come as a surprise to learn that this guidance has implications for the Telstra dividend.
Dividend forecast through to 2027
According to a note out of Goldman Sachs, its analysts have downgraded their estimates for the Telstra dividend.
For FY 2024, the broker continues to expect a fully franked 18 cents per share dividend. This represents a 5.1% dividend yield based on the current Telstra share price of $3.53.
However, in FY 2025, Goldman now only expects a half cent increase to 18.5 cents per share. This is down from its previous estimate of 19 cents per share. Though, Goldman's new dividend estimate still equates to an above-average dividend yield of 5.25%.
Looking ahead, it is a similar story in FY 2026, with Goldman now pencilling in a 19.5 cents per share fully franked dividend for that financial year. This is down from its previous estimate of 20 cents per share.
But once again, an attractive dividend yield would be on offer with Telstra's shares if this dividend estimate is accurate. Based on its current share price, 19.5 cents per share equates to a 5.5% yield.
Should you invest?
Goldman may have been disappointed with Telstra's update, but it still sees a lot of value in its shares.
It currently has a buy rating and $4.25 price target on them, which implies potential upside of 20% for investors over the next 12 months.
