3 reasons why the Telstra share price is a buy
The Telstra Group Ltd (ASX: TLS) share price has been drifting lower in recent times, and this could be a great time to invest in the ASX telco share. It has dropped 5% in the past month.
I'd prefer to invest in a business when it's cheaper rather than more expensive. I can understand that investors may have been hoping for more from the business when it announced its FY26 result and revealed guidance for FY27, but this seems like a good time to put money to work.
When a valuation is cheaper, I think investors are more likely to see positive returns. Let's look at three of the positives about the Telstra share price right now.
Earnings growth
The company reported a decent set of numbers in the FY26 result, with operating profit (EBIT) growth of 1.7% to $4 billion, net profit after tax (NPAT) growth of 2.7% to $2.4 billion and earnings per share (EPS) growth of 5.3%. Cash EBIT grew 8% to $4.7 billion and cash EPS increased 13.8% to 25.5 cents.
The result was driven by the mobile division, with a 3% rise in income to $11.4 billion and a 3% increase of operating profit (EBITDA) to $5.4 billion amid a 3.7% increase in the average revenue per user (ARPU) and a 1.9% increase in mobile handheld users.
Excitingly, the business is guided further growth in the 2027 financial year. It has suggested that operating profit (EBITDAaL) could grow between 1.9% to 5.5%, while cash EBIT could climb between 1.9% to 6.2%.
I think the company has been impressive over the last few years, delivering a mixture of user growth and ARPU growth. Australia continues to need mobile services and this is helping drive user demand, giving the company scale benefits that's helping the bottom line.
Telstra share buyback
With the FY26 result, the business announced that it would carry out a share buyback of up to $1 billion, on top of the $1.25 billion share buyback that it completed during FY26.
When carried out at a good share price, Telstra can improve the value of each share for investors.
It reduces the number of shares that the earnings and dividend are being shared across. That's why Telstra's net profit rose 2.7% and the EPS grew much faster, at a rate of 5.3% in FY26.
The share buyback will also reduce Telstra's equity, which will help statistics such as the return on equity (ROE).
It's trading close to its 52-week low, so this seems like a good time to enact the buyback.
Dividend yield
Capital growth isn't certain, particularly when the wider share market can be volatile sometimes.
Dividends can form an important part of the overall return and Telstra continues to reward shareholders with solid dividends.
If it repeated its FY26 annual dividend of 21 cents per share, it would provide a grossed-up dividend yield of 6.1%, including franking credits, at the current Telstra share price.
I'm optimistic the Telstra dividend will increase again in FY26, partly due to the share buyback.
The post 3 reasons why the Telstra share price is a buy 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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