Why Telstra shares have a bright future for dividends and growth

An expert thinks Telstra is a good blue-chip to hold.

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When we think about reliable ASX blue-chip shares, Telstra Group Ltd (ASX: TLS) may be one of the names that springs to mind.

Shaw and Partners senior investment adviser Jed Richards has identified the ASX telecommunications share as a large-cap stock to hold.

Richards described Telstra as the business with "the most commonly used mobile and broadband services" in Australia.

According to reporting by The Australian, the expert from Shaw and Partners has called Telstra shares a hold (though not a buy) for a few positive reasons.

A shift of investor views

Richards suggested that the market historically viewed Telstra as a growth stock as technology and data usage increased across Australia.

However, as the chart below shows, the Telstra share price has fallen over the past decade – it's down 38% from February 2015.

Created with Highcharts 11.4.3Telstra Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Feb 20156 Jan 2025Zoom ▾20162017201820192020202120222023202420252016201620182018202020202022202220242024www.fool.com.au

The expert said that with the decline of the ASX telco share's valuation, it's now priced as a value stock with "strong cash flows".

Following that decline and considering the outlook for Telstra shares, he had a few reasons to be positive about the company.

Why we can be optimistic about Telstra shares

The Shaw and Partners investment expert points out that Telstra generates consistent revenue and also pays shareholders regular dividend payments.

Richards believes those two factors make Telstra a "favourite Australian blue-chip for income-focused investors".

In the 2024 financial year, Telstra's board declared an annual dividend per share of 18 cents. This came after 1% underlying total income growth to $23.4 billion, 3.7% underlying operating profit (EBITDA) growth to $8.2 billion, and 7.5% underlying net profit after tax (NPAT) growth to $2.3 billion.

At the current Telstra share price, its FY24 dividend translates into a fully franked dividend yield of 4.4% and a grossed-up dividend yield of 6.3%, including franking credits.

The Shaw and Partners senior investment adviser explained why Telstra's profit could keep growing in the future:

As data usage continues to grow, Telstra is well placed to continue delivering good solid results for Australian investors.

Telstra share price valuation

Commsec forecasts value the Telstra share price at 20.6x FY25's estimated earnings.

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Motley Fool contributor Tristan Harrison 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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