Many investors look at the Telstra Group Ltd (ASX: TLS) dividend as an important factor when considering the ASX share. Because of the size of the dividend yield, owning Telstra shares could be one of the more rewarding S&P/ASX 200 Index (ASX: XJO) shares when it comes to passive income.
Now, I don't think the dividend should be the first priority for investors – earnings growth and valuation are the most important aspects of an ASX share consideration, in my opinion.
However, I do think that Telstra shares tick many boxes. Mobile subscribers are growing and the average revenue per user (ARPU) is increasing thanks to price rises. Growing revenue is an integral element for profit growth, and profit is a major part of the valuation picture, in my opinion.
I'd be happy to buy Telstra shares for the long term at the current valuation, particularly given the potential size of the dividend in the coming years.
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Telstra dividend FY28 forecast
As we know, the 2025 financial year is already underway, and the 2028 financial year is now just three years away.
In FY24, Telstra's board of directors decided on an annual dividend per share of 18 cents per share. That currently translates into a fully franked dividend yield of 4.5% and a grossed-up dividend yield of 6.5%.
Broker UBS thinks the company will increase its annual dividend per share again in FY25 to 19 cents per share. That translates into a forward fully franked dividend yield of 4.8% and a grossed-up dividend yield of 6.9%.
According to the broker, Telstra could experience solid dividend growth by FY28. UBS suggests the 2028 annual dividend payout could be 24 cents per share, representing 33% growth compared to the FY24 payout.
At the current Telstra share price, UBS analysts predict Telstra could have a fully franked dividend yield of 6.1% and a grossed-up dividend yield of 8.7%. If this prediction proves accurate, it would be a very good yield for shareholders.
The broker thinks the dividend could grow even faster if there is a quicker-than-expected contribution from InfraCo's intercity fibre project as well as better-than-expected cost reductions beyond FY25.
Profit growth expected
UBS is forecasting significant profit growth for Telstra in the coming years. Analysts predict the company could make $2.15 billion of net profit after tax (NPAT) in FY25.
By FY28, Telstra's net profit could rise to $2.96 billion, which translates into earnings per share (EPS) of 26 cents. That implies the dividend payout ratio could be 92% in the 2028 financial year.
UBS thinks Telstra can achieve these growth numbers through subscriber growth, price rises and cost reduction.
