The Motley Fool

Does Telus Corporation’s Subscriber Growth Make it the Top Telecom Stock to Buy Today?

Telus Corporation (TSX:T)(NYSE:TU), one of the largest telecommunication companies in Canada, announced second-quarter earnings results on the morning of August 7, and its stock has responded by falling about 2% in the trading sessions since. Let’s take a closer look at the results to determine if we should consider using this weakness as a long-term buying opportunity, or if there is an underlying factor that could hold the stock back going forward.

Subscriber growth leads to a very strong Q2 performance

Here’s a summary of Telus’s second-quarter results compared with what analysts had anticipated and its results in the same period a year ago.

Metric Reported Expected Year-Ago
Adjusted Earnings Per Share $0.66 $0.66 $0.63
Operating Revenues $3.10 billion $3.09 billion $2.95 billion

Source: Financial Times

Telus’s adjusted earnings per share increased 4.8% and its operating revenues increased 5.1% compared with the second quarter of fiscal 2014. These very strong results can be attributed to the company’s total customer connections increasing 2.5% to 13.94 million, including a 3.3% increase in the number of wireless subscribers to 8.35 million, a 6.2% increase in the number of high-speed Internet subscribers to 1.5 million, and a 10% increase in the number of TV subscribers to 954,000.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Revenue increased 7.4% to $1.74 billion in its Telus Wireless segment
  2. Revenue increased 2.3% to $1.42 billion in its Telus Wireline segment
  3. Adjusted earnings before interest, taxes, depreciation, and amortization increased 5.1% to $1.14 billion
  4. Average revenue per user increased 2.9% to $63.48 in its Telus Wireless segment
  5. Cash provided by operating activities increased 10.3% to $943 million
  6. Free cash flow increased 42.9% to $300 million
  7. Return on common equity improved 30 basis points to 18.3%
  8. Outstanding shares at the end of the period decreased 2.1% to 602 million

Telus also announced that it will be maintaining its quarterly dividend of $0.42 per share, and the next payment will come on October 1 to shareholders of record at the close of business on September 10.

Should you buy shares of Telus today?

It was a fantastic quarter overall for Telus, so I do not think the post-earnings drop in its stock was warranted. With this being said, I think Foolish investors should consider using it as a buying opportunity for two primary reasons.

First, Telus’s stock now trades at just 17.2 times fiscal 2015’s estimated earnings per share of $2.56 and only 15.7 times fiscal 2016’s estimated earnings per share of $2.80, both of which are very inexpensive compared with the industry average price-to-earnings multiple of 20.7.

Second, Telus pays an annual dividend of $1.68 per share, which gives its stock a 3.8% yield at today’s levels. It is also very important to note that the company has increased its dividend nine times since announcing its multi-year dividend-growth program in May 2011, and it expects to increase it by another 10% annually through 2016, making it one of the top dividend-growth plays in the market.

With all of the information above in mind, I think Telus Corporation represents the best long-term investment opportunity in the telecommunications industry today. All Foolish investors should strongly consider making it a core holding.

This stock should be a core holding of yours as well...

Does your portfolio have rock-solid blue chips at its core? If it does… GREAT! If not, you might want to reconsider your strategy.

Either way, we think you should take a look at what our analysts have identified as one TOP stock for 2015 and beyond—a stock with a tollbooth-like business; a solid management team; and a reliable, consistent, and rising dividend—and you can download the name, ticker symbol, and price guidance absolutely FREE.

Simply click here to receive your Special FREE Report, “1 Top Stock for 2015—and Beyond.”

Fool contributor Joseph Solitro has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.