The Telstra Group Ltd (ASX: TLS) share price hasn’t moved that much over the past year, though it is up 6%. However, I think it’s on track to deliver market-beating returns from here.

To be clear, I’m not suggesting Telstra shares are about to double over the next 12 months. But I believe the combination of dividends and capital growth can beat the S&P/ASX 200 Index (ASX: XJO) over the next two or three years.

Looking at the 20 biggest blue-chip ASX shares in terms of market capitalisation, I think Telstra is one of the first I’d want in my portfolio. In my opinion, there are a number of reasons why investors who are interested in Telstra can consider it an unmissable buy during this period of time.

Growing revenue

I think that Telstra is now in a strong position where it can increase prices for its subscribers. While increasing its subscription price in line with inflation is not exactly a huge jump, it does mean it can give itself a very useful revenue boost. In the FY23 half-year result, it grew its revenue by 6.4%.

But, the state of the telco market seems to be that there is less competition – TPG Telecom Ltd (ASX: TPG) is also increasing prices. While not ideal for customers, it is hopefully going to mean a boost for total revenue. Telstra also continues to add more mobile customers.

I think that Telstra’s revenue can grow in a number of other ways. For example, it could charge more for 5G mobile connections and it could win over households from a NBN connection to a wireless 5G connection. Telstra can also grow in the Pacific region with Digicel Pacific while other divisions such as Telstra Health could become meaningful contributors to income.

I believe that revenue growth will help drive the Telstra share price.

Improving margins

Costs are a very important part of a business. Put simply, companies can’t operate without paying the costs which help them run and grow.

However, most businesses can improve their operations and become more efficient. That doesn’t just mean cutting jobs or other things for the sake of it.

But, Telstra is looking to cut $500 million of costs out of the business by FY25 despite the impacts of inflation and investing for growth.

The business is looking to grow its underlying earnings per share (EPS) at a high-teen compound annual growth rate (CAGR) between FY21 to FY25. In the FY23 half-year result, Telstra delivered a 27.1% increase in EPS.

I think that its ongoing efforts to grow revenue and reduce costs (as a percentage of revenue) will help the company’s profit margins in the next few years. Higher profit should help grow the Telstra share price over time.

Rising dividend

The improving outlook for the EPS is helping the Telstra board boost the dividend again finally.

In the HY23 result, Telstra grew its interim dividend by 6.3% to 8.5 cents per share. I think that the Telstra board want to steadily increase the dividend to shareholders over the next few years as profit improves.

If the FY23 annual dividend is 17 cents, it would represent an increase from FY22 and it would amount to a grossed-up dividend yield of 5.75%. I think the dividend return can form a solid base for its annual returns from here, while growth of the Telstra share price would mean a pleasing total shareholder return over the next two to three years as Telstra carries out its T25 strategy.

The post Why I think the Telstra share price is now an unmissable buy appeared first on The Motley Fool Australia.

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More reading

• Brokers name 3 ASX shares to buy now
• Passive income watch: 3 ASX 200 shares that announced boosted dividends this week
• Broker gives its verdict on the Telstra share price post-results
• Why Bapcor, Magellan, Sonic Healthcare, and Telstra shares are charging higher
• Everything you need to know about the boosted Telstra dividend

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 Australia has recommended Tpg Telecom. 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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