The Motley Fool

Should Dividend Investors Buy Telus Corporation or Potash Corp./Saskatchewan Inc.?

Telus Corporation (TSX:T)(NYSE:TU) and Potash Corp/Saskatchewan Inc. (TSX:POT)(NYSE:POT) are two names that have benefited from the outflow of cash from the energy sector, but that trend is changing.

In fact, both stocks have been under pressure recently for a variety of reasons and dividend investors with a long-term horizon are wondering which company is the better choice.

Let’s take a look at both Telus and Potash Corp. to see if one deserves to be in your portfolio.

Telus

Canada’s fastest growing telecom company has been a big winner for investors in the past five years. In fact, the stock is up more than 120% in that time frame, but the stock is down more than 5% in the last two months.

What’s going on?

Part of the blame can be put on the rotation back into energy stocks, but the market is also concerned about some sector-specific issues. This summer, all three-year wireless contracts will disappear and providers like Telus are scrambling to lock-in customers under new agreements before they get the chance to shop around. In order to do so, the companies are offering heavy incentives and this is expected to hit short-term margins.

Recent changes announced by the CRTC also have some investors worried about future earnings growth from TV subscribers.

Next year Canadians will have the option of buying a basic TV package for $25 per month and then pay for the additional channels they want to receive on a one-by-one basis. Subscribers love the idea, but service providers and content owners are not happy.

Telus is in a unique position because it doesn’t own media assets; the company simply distributes the content to its customers. As a result, pick-and-pay should have less of an impact on Telus’ earnings than it could for the actual content owners.

As a long-term bet, Telus is a solid dividend pick. The company has limited competition and is seeing strong subscriber growth in its wireless, Internet, and TV offerings.

At this point the 3.8% yield is safe and investors should see the payout continue to increase at a healthy clip.

Potash Corp.

Potash is under pressure because it just reported weaker-than-expected Q1 2015 earnings and lowered its full-year guidance.

North American farmers are facing the consequences of last year’s strong crop yields. Big harvests mean lower prices and the U.S. Department of Agriculture says farm profits in 2015 are going to drop compared with last year.

Global potash prices are also recovering at a slower pace than expected because big suppliers are in a nasty battle for market share.

All of these issues should be short term in nature and long-term investors should consider the big picture. Potash sales hit a record 61 million tonnes in 2014. This isn’t surprising given the fact that the world’s population continues to increase, while urban development gobbles up farmland.

At the same time, people around the world want more meat and farmers are allocating more land each year to grow crops to feed the extra animals. In the end, this all points to greater demand for crop nutrients like potash.

Potash Corp. is completing a massive capital program. This is good news for dividend investors because more cash flow should be available for distributions once the facilities switch from the development phase to production.

Potash pays a dividend of US$1.52 per share that yields about 4.7%.

Which should you buy?

If you have the cash available, both stocks are solid long-term buys. Potash is going to be more volatile in the near term as the market adjusts to the lowered earnings guidance. If you have to pick one, Telus is probably a safer bet right now.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Potash Corp.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.