The big telecoms are popular investments for dividends because the companies have track records of increasing them.
Telus Corporation (TSX:T)(NYSE:TU) claims to be the fastest-growing Canadian telecommunications company. It has 8.4 million wireless subscribers, 3.1 million wireline network access lines, 1.5 million Internet subscribers, and 980,000 Telus TV customers.
Telus’s annual revenue is around $12.4 billion, of which, 56% comes from wireless, 30% comes from wireline data, and 15% comes from wireline voice and other.
Lately, Telus’s price has come under pressure. This may be due to Telus having higher financial leverage compared with historical levels, and the company may be seen as riskier by the market. Telus’s adjusted debt-to-EBITDA is now expected to be in the range of 2.75-3.0 times. Despite the higher leverage, Telus remains a strong franchise and a well-run company.
At about $39.70, Telus yields 4.4%. Compared with the yield range in the past five years, this yield point is historically high for the company and indicates that the stock may be priced at a good value.
Track record of earnings and dividends
Telus has paid dividends since 1999 and has paid a growing dividend for 11 consecutive years. That can only be achieved by having stable earnings, which dividends are paid out of. It even managed to increase the dividend in the last recession.
After the two dividend increases this year, the telecom’s shareholders have seen their income increase by 10%.
With its annual payout now projected to be $1.76 per share based on quarterly dividends of 44 cents per share, Telus has a forward payout ratio of 67-73%. Telus targets the long-term payout ratio to be between 65% and 75%.
From 2010 to 2015, Telus’s annual payout increased by 67% in total, or 10.9% per year on average.
Telus gives the following 2015 guidance:
- Revenue growth of 3-5%. That is, estimates of $12.35-12.55 billion
- Earnings-per-share growth of 4-13%. That is, estimates of $2.40-2.60
Outlook and returns forecast: 2016
For 2016, Telus plans to increase the dividend twice and aims to increase it by about 10% in total. Telus also plans to buy back and cancel up to 16 million shares worth about $500 million. With fewer shares in the market, a shareholder’s stake will grow without having to do anything.
Telus is also committed to long-term consistent investments in wireless, wireline, and efficiency that should spur growth in the company. One of the growth areas is Telus Health, which is a leader in electronic medical and health records, consumer health, benefits management, and pharmacy management.
With a multiple under 16, Telus is trading within fair-value range. With a yield of 4.4% today, and if the dividend grows at a more conservative rate of 8%, investors can expect returns of over 12% from an investment today. As such, Telus is a good, quality investment today.