The Motley Fool

Should Dividend Investors Buy Telus Corporation Today?

Telus Corporation (TSX:T)(NYSE:TU) has a strong history of rewarding shareholders with growing dividends and share buybacks, but the stock has been trending lower for the past two months and new investors are wondering if this is the right moment to dial up some shares.

Let’s take a look at the current situation to see if Canada’s fastest growing telecom company deserves to be in your portfolio.

Industry challenges

The Canadian media and telecommunications industry is going through some interesting changes and the big players in the market are scrambling to hold onto their most valuable customers.

This summer any subscriber who is on a three-year mobile contract will have the option to walk away without penalty. In an effort to re-sign as many of these customers as possible before the deadline, Telus and its competitors have been rolling out the red carpet and offering juicy incentives.

This is probably going to put pressure on margins in the near term and investors should prepare for higher expenses when Telus reports Q1 earnings.

A customer-first strategy has paid off well for Telus, and that should translate into strong retention rates in the current environment. The company already has the lowest postpaid mobile churn rate in the country, and Telus’ mobile subscribers spend a lot of money. For 2014 the company’s blended average revenue per user (ARPU) came in at an industry high of $64.20.

Rules are also changing on the TV side of the business. The CRTC recently announced an overhaul to the way TV packages will be offered. Beginning next March a basic package of mostly local and educational content will cost $25 per month, and subscribers will have the option to pick and pay for any additional content.

This could work out well for Telus because it does not have billions of dollars tied up in media assets. The company operates as a distributor and has the ability to negotiate deals with all the content owners for access to its customers.

Competing companies would prefer to use their content as bait to draw subscribers, but Telus has a customer base of 13.7 million, so the media giants have to play ball.

It is possible that Telus will be able to give its customers the option to pick between competing Internet streaming services, all of Canada’s top specialty channels, and any of the country’s major TV networks. All of this comes without carrying the risks tied to owning and producing the content.

Dividends and share buybacks

Telus looks after its customers, but the company also treats its shareholders very well. The company has increased the dividend 15 times in the last 11 years and returned $11 billion to holders of the stock.

Telus pays a dividend of $1.60 per share that yields about 3.9%.

Should you buy?

Earnings might get pinched in the near term and the stock could continue its downward trend in the next couple of months. In the big picture, this is a great company in a market that has limited competition. With the yield approaching 4%, Telus is probably a good long-term bet at the current price.

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 has no position in any stocks mentioned.

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.