The Telstra Group Ltd (ASX: TLS) share price is languishing near 52-week lows, I’m going to explain why I think it’s buy.
The ASX telco share is going through an interesting time amid the inflationary environment.
For me, there are two (or three) key things I want to see from an investment if it has fallen: rising profit and a good growth outlook. With Telstra, there’s the added bonus of a good dividend.
Dividend yield
Telstra shares usually offer a good dividend yield because of the fairly high dividend payout ratio. That means it’s paying out a lot of the annual profit that it makes each year.
While that doesn’t leave much profit within the business for re-investment, it does mean the company provides a generous dividend yield.
The estimate on CMC Markets shows Telstra shares are predicted to pay an annual dividend per share of $0.19 per share in FY25. With that payout, it translates into a dividend yield of 5.1%, or 7.4% including the franking credits.
Growing profit
Profit growth is normally what drives the Telstra share price (and any share price) higher. Telstra is seeing solid profit growth in recent times because the business is benefiting from both increasing subscriber numbers and increasing mobile prices, helping the average revenue per user (ARPU).
One of the most appealing things about Telstra is that its telecommunication infrastructure has already been constructed, and the company is experiencing those fixed costs. Therefore, additional subscribers are a boost for the underlying margins and the overall profit.
Good longer-term growth outlook
The world is becoming increasingly technological, with significantly more data and information being transmitted and utilised every year.
Advancements like 5G, AI, data centres, virtual reality and online streaming should help increase demand for Telstra’s mobile and wire networks.
I think the longer-term looks appealing for Telstra shares, which could help drive its earnings higher for the next decade.
