One magnificent ASX dividend stock down 10% to buy and hold for decades

I think Telstra Group Ltd (ASX: TLS) is a leading blue-chip ASX dividend stock with great appeal for income investors.

There are a few reasons why Telstra shares are so attractive for dividends. Before we get to that, let's look at the recent Telstra share price movement.

Shares in the telco are down close to 10% since April last 2023 and have fallen almost 40% since February 2015. This lower price represents value in my eyes.

Telstra is already Australia's largest telecommunications business, and I think there's a lot to like about it.

Appealing dividend yield

Income investors may have a laser focus on how much dividend income they are paid from their investments.

Owning Telstra shares comes with a relatively high dividend yield because of its generous dividend payout ratio.

In the FY24 result, the ASX dividend stock boosted its annual dividend per share by 5.9% to 18 cents per share.

At the current Telstra share price of $4, that translates into a grossed-up dividend yield of 6.4%, including franking credits. That's significantly superior to what term deposits pay, and it could keep growing. According to Commsec, by FY26, it's predicted to pay a grossed-up dividend yield of 6.8%.

Ongoing growth

Telstra's financial performance has been strong, and I have confidence that can continue.

In FY24, the company reported that its underlying revenue rose 1% to $23.4 billion, underlying operating profit (EBITDA) grew 3.7% to $8.2 billion, and underlying earnings per share (EPS) increased 5.7% to 18.5 cents.

Telstra's overall result was determined by the mobile division, which saw revenue growth of 5% to $10.7 billion and EBITDA growth of 9% to $5 billion. These numbers were largely driven by a 4.1% growth of mobile handheld users, which was a rise of 562,000 users. Mobile revenue and profit were also helped by a 2.1% increase in the average revenue per user, thanks to price increases.

I believe that Telstra can continue growing its number of users and revenue per user, which can help drive its profit higher. It's a scalable ASX dividend stock because having more users on the same network decreases the fixed costs per user, increasing margins.

If Australia's population keeps growing, Telstra's profit can continue rising thanks to its leading mobile network and high market share.

The forecasts on Commsec suggest the ASX dividend stock's EPS could rise to 19.7 cents in FY25 and 20.9 cents in FY26. Not only could that help pay for bigger dividends, but it could also encourage the market to pay more for Telstra shares.

Own this ASX dividend stock for decades

Data and an internet connection appear to be essential these days for communication, learning, work, transportation, entertainment and more. The world is becoming increasingly digital and Telstra is a key player enabling that adoption in Australia.

Indeed, I think Australia will become more digitally integrated in the coming decades.

With 5G, Telstra can provide an ultra-fast connection for consumers that could rival the NBN. In the future, I expect more households to sign up for wireless broadband – broadband powered by the mobile network. This would allow Telstra to capture the home broadband margin it lost to the NBN in the 2010s.

I imagine that Telstra will be at the forefront of 6G when that is eventually rolled out, giving the ASX dividend stock more potential to get ahead of rivals.

Ultimately, I think Telstra shares can continue delivering pleasing returns for shareholders and the telco can provide an improving service for households and businesses in the decades ahead.

The post One magnificent ASX dividend stock down 10% to buy and hold for decades appeared first on The Motley Fool Australia.

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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