Buy Telstra and this ASX dividend stock now

Analysts are saying good things about these dividend stocks. Let's see why they are bullish.

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Income investors have a lot of options on the Australian share market.

To narrow things down for them, let's now take a look at a couple of buy-rated ASX dividend stocks that are being tipped to provide investors with 5%+ dividend yields in the near term.

Here's what analysts are saying about these stocks:

Telstra Group Ltd (ASX: TLS)

The first ASX dividend stock that is a buy according to analysts is Telstra. It is Australia's largest telecommunications company.

Goldman Sachs is very bullish on Telstra for a number of reasons. One is its low risk earnings growth, another is its opportunity to unlock value through asset sales. It also thinks the company's defensive qualities make it a good option in the current environment. The broker said:

We believe the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned through its mobile business, is attractive. We also believe that Telstra has a meaningful medium term opportunity to crystallise value through commencing the process to monetize its InfraCo Fixed assets – which we estimate could be worth between A$22-33bn.

 Although at a headline level, Telstra valuation appears relatively full (vs. peers and vs. 10Y yield), we note: (1) Adjusting out NBN recurring payments (a unique asset), Telstra trades at a much more compelling multiple; (2) Although its yield spread is compressed vs. history, when factoring dividend growth this is more attractive. Hence in an uncertain 2024 we rate Telstra Buy.

As for dividends, Goldman is forecasting fully franked dividends of 19 cents per share in FY 2025 and then 20 cents per share in FY 2026. Based on the current Telstra share price of $3.85, this represents dividend yields of 5% and 5.2%, respectively.

The broker has a buy rating and $4.35 price target on its shares.

Smartgroup Corporation Ltd (ASX: SIQ)

Another ASX dividend stock that gets the thumbs up from analysts is Smartgroup.

It describes itself as a simplified employee management services provider that offers salary packaging, fleet management, and a range of other services to businesses across Australia.

The team at Bell Potter is feeling bullish on the company and believes its shares are attractively priced given its defensive earnings and favourable tailwinds from electric vehicle adoption. It commented:

Smartgroup is an industry-leading provider of employee benefits, end-to-end fleet management and software solutions with over 400,000 salary packages and 64,000 novated leases under management. SIQ looks well priced given a fwd P/E of ~14.5x, a defensive client base, earnings tailwinds from the Electric Car Discount Bill (exempts low or zero emission vehicles from Fringe Benefits Tax), an ROE of ~30% and a strong balance sheet.

In respect to income, the broker is forecasting fully franked dividends of 53.3 cents in FY 2024 and then 59.7 cents in FY 2025. Based on its current share price of $7.80, this means big potential dividend yields of 6.8% and 7.6%, respectively.

Bell Potter has a buy rating and $10.00 price target on its shares.

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 positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Smartgroup and 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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