Of all the ASX blue chip shares we could buy, one of my top options is Telstra Group Ltd (ASX: TLS) shares.
There’s no definitive description of what a blue chip is. For me, it describes the largest, strongest and most well-known businesses within their industry and in the country.
Telstra may be well known as a telecommunications business, and there are a few reasons why I believe it’s a great blue-chip buy.
Economic moat
Firstly, I think it has a great economic moat. Having an economic moat is another way of saying it has competitive advantages. In other words, what keeps a company ahead of another one in the industry to ensure it’s not overtaken?
Telstra has a key advantage. It has the leading network due to a combination of the most infrastructure, the best spectrum and the widest coverage across the country. Those factors are attractive for retaining existing customers and winning new ones that want quality.
When customers are willing to pay for the best, rather than the cheapest, it allows the business to earn higher margins and also gives it the potential to increase prices without losing many customers. That’s what has happened in the last few years – Telstra has increased its mobile prices during this inflationary environment, providing a pleasing boost to revenue.
Being the biggest telco should allow the company to continue investing the most in 5G, 6G and other technology in the future, which should ultimately support the return of Telstra shares.
Growing subscribers
The company continues to grow its scale each year, thanks to the increasing number of subscribers. Having more subscribers means it can spread the cost of its network across more users, lowering the fixed cost-to-revenue ratio and improving its profit margins.
In FY24, it added 562,000 more users, which represented 4.1% growth year on year. On top of that, the average revenue per user climbed by 2.1% year over year to $42.89.
Having more users gives the company operating leverage and can help it fund more growth in the future.
Dividend
Income-focused investors looking at Telstra shares will be pleased to know that the telco continues to grow its dividend for shareholders.
In the 2024 financial year, the business hiked its payout by 5.9% to $0.18 per share. At the current Telstra share price, that equates to a fully franked dividend yield of 4.6%.
If profit keeps climbing then I expect the dividend will continue rising in the coming years as well. This is an important element of Telstra’s overall returns.
