Discover if Telus Stock is a Smart Buy with Its Attractive 8.3% Dividend Yield
Investing in dividend stocks can be a rewarding way to create a passive income stream. One notable option is Telus (TSX:T), which offers an attractive forward yield exceeding 8%. This is based on an anticipated annual dividend payout of $1.66 per share in 2025.
Overview of Telus
Telus is a Canadian telecommunications and technology company headquartered in Vancouver. It operates through two primary segments:
- Technology Solutions: Offers mobile and internet services, cloud solutions, healthcare technology, and smart supply chain systems.
- Digitally-Led Customer Experiences: Provides AI-driven digital transformation and customer experience solutions.
Recent Performance
In the past decade, Telus stock has generated a return of 64% to shareholders, even when considering dividend reinvestments. This is notably lower than the TSX index, which has seen investor returns more than triple since November 2015.
Despite reaching an all-time high in early 2022, Telus stock has experienced a decline of over 40%, which has contributed to its current high dividend yield.
Third Quarter Results
Telus recently reported strong third-quarter results, showcasing the robustness of its telecommunications and technology business model. Key highlights include:
- 288,000 total mobile and fixed customer additions, the best performance in the industry.
- Total customer connections reaching nearly 21 million, a 5% year-over-year increase.
- Postpaid mobile phone churn maintaining an impressive 0.91% rate, marking 12 consecutive years below 1%.
The Technology Solutions segment achieved 3% growth in EBITDA, despite a 2.8% decline in average revenue per user (ARPU), showing signs of sequential improvement.
Growth in Internet and Health Services
Telus added 40,000 internet subscribers in Q3, driven by the expansion of its PureFibre network. The company plans to bundle multiple services to enhance overall customer economics and address ARPU challenges.
Telus Health demonstrated significant growth, with revenue rising by 18% and adjusted EBITDA increasing by 24%. The integration of LifeWorks has resulted in $417 million in annualized synergies, far exceeding the original $150 million target set during the acquisition in September 2022.
Strategic Milestones
The successful completion of the Telus Digital privatization marks a significant strategic achievement. Management anticipates this move will yield $150 million to $200 million in annualized cash synergies. This aligns with broader initiatives to enhance operational efficiency.
Financial Strength and Projections
Telus has improved its balance sheet through partnerships, including the Terrion tower collaboration with La Caisse, which is already operational with 3,000 wireless sites. The company’s leverage ratio has decreased to 3.5 times and targets 3.0 times by 2027.
Free cash flow rose by 8% to $611 million, bolstered by EBITDA growth and reduced capital expenditures.
Valuation and Future Outlook
Analysts predict that adjusted earnings per share for Telus will increase from $0.98 in 2025 to $1.39 per share by 2029. During this period, free cash flow is expected to grow from $2.10 billion to $3.34 billion.
Currently, Telus stock trades at a forward free cash flow multiple of 12.9 times, significantly lower than its ten-year average of 21.3 times. This suggests potential for a more than 30% gain over the next three years, bringing cumulative returns, when factoring in dividends, closer to 60%.
Telus has a solid track record of increasing its annual dividend, rising from $0.84 per share in 2015 to $1.56 per share in 2024. Analysts foresee an increase to $2.18 per share by 2029.
With its substantial dividend yield and strong growth outlook, Telus stock appears to be an attractive option for investors considering dividend-focused investments.
