I'd buy 24,000 shares of Telstra stock to aim for $400 a month of passive income

Owning Telstra Group Ltd (ASX: TLS) stock can be a great choice for passive income because of the company's apparent commitment to paying pleasing dividends to investors.

Telstra is able to deliver strong profits because of its market-leading position in the Australian telecommunications market. It's the clear leader when it comes to the number of subscribers of national network coverage.

By having the most subscribers, it can invest the most in its network. By having the best network, it can attract more subscribers. For Telstra, it's a very pleasing circle.

With its generated profit, it can sustain a very high dividend payout ratio, unlocking an excellent dividend yield for owners of Telstra stock. The company has a goal to pay rising dividends, if it's able to.

How to make $400 per month of passive income

Telstra has grown its annual dividend per share each year over the last few years, and that streak is expected to continue.

The projection on Commsec suggests the business could pay an annual dividend per share of 20 cents in FY26. At the time of writing, that translates into a grossed-up dividend yield of close to 6%, including franking credits. The FY25 payout is projected to be 19 cents per share, which we haven't seen yet. The FY25 report is due to be released this month.

Telstra doesn't pay a dividend every month, so we should think of the target as an annual goal and then divide that by 12.

Receiving $400 translates into $4,800 per year. If owning Telstra stock does mean receiving 20 cents per share in the current financial year, we're talking about owning 24,000 Telstra shares. This excludes the added bonus of franking credits.

I believe Telstra's payout could continue to grow in the coming years, thanks to ongoing subscriber growth as well as price rises for subscribers, boosting the average revenue per user (ARPU).

Is this a good time to buy Telstra stock?

The Telstra share price has risen around 25% in the last year, so it's not as cheap as it was.

But, I'm expecting regular underlying profit growth in the next few years, particularly if its subscriber count continues growing. Plus, it's investing heavily in 5G, which could unlock further earnings streams. For example, if Telstra's 5G can capture some home broadband market share, that would boost its margins.

At the time of writing, it's trading at less than 26x FY26's estimated earnings, which I believe is a fair and appealing price for such a defensive business.

The post I'd buy 24,000 shares of Telstra stock to aim for $400 a month of passive income 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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