I’m calling Telstra Group Ltd (ASX: TLS) shares a buy for 2025 for a few different factors. Let me explain why.
The telecommunications business is known as the leading telco in Australia. But, there’s more to the appeal than just that. Here’s what attracts me about the company.
Still increasing mobile prices
There are two main ways that Telstra can increase the revenue of its key mobile division. One is by growing its number of subscribers and the other is increasing the price for those customers.
Telstra is boosting its revenue by increasing mobile prices for customers. Customers seem to have a high level of loyalty and are willing to pay for the leading network.
In July, the business announced it would increase most postpaid mobile plans by between $2 to $4 per month. I think this is a good tailwind for Telstra shares. Telstra justified this increase by saying it continues to invest in its network, including spectrum.
Rising profit margins with the mobile division
With the mobile infrastructure already largely built, additional revenue is a bonus to the financials and this is helping the company’s profit margins increase.
For example, in FY24, the mobile division reported income growth of 5% to $10.7 billion and EBITDA growth of 9% to $5 billion.
I believe Telstra’s revenue will be a large driver of its mobile earnings, and the mobile EBITDA/earnings will be the biggest driver of Telstra’s overall earnings in the coming years.
Compared to some other big Australian companies, I think Telstra’s earnings growth can more consistently outperform the growth of miners and banks, partly thanks to Telstra’s ability to deliver profit margin growth because it has more control over its market (compared to commodity prices and a competitive loan sector).
Good dividend returns
While profit growth should be a big driver of growth of the Telstra share price, the dividend could also juice returns.
In FY24, Telstra paid an annual dividend per share of $0.18. If the telco were to repeat that, it would represent a dividend yield of 4.5%, or 6.4% including franking credits.
That’s a pleasing starting yield, in my opinion, and could add to market-beating returns in the coming years with Telstra shares.
