Is Telus Corporation Canada’s Best Dividend Stock?

Telus Corporation (TSX:T)(NYSE:TU) is a great stock with a fantastic dividend. Is that enough to make it Canada’s best dividend stock?

| More on:
The Motley Fool

When it comes to identifying Canada’s best dividend stock, we should look for a company with the following characteristics:

  • A good current yield
  • Both dividend-growth history and a reasonable payout ratio
  • Organic growth potential
  • The ability to make acquisitions to grow the business
  • Great profit margins
  • Proven ability to navigate through recessions

There are several companies that check off all these boxes, but only one can be Canada’s finest dividend stock. Is Telus Corporation (TSX:T)(NYSE:TU) worthy of the crown?

Growth potential

Ultimately, a company’s dividend growth comes from increases in profits. Without the bottom line getting constantly larger, it’s really hard to keep increasing the dividend.

Telus continues to grow organically through a number of different ways. The company is slowly gaining customers from its competitors in both wireless and cable television. Canada’s economy is slowly expanding, which brings new customers into the fold. And Telus is doing a nice job of keeping its current customers, consistently posting a churn rate of lower than 1%. It then passes through price increases to these customers.

Telus doesn’t just have organic growth potential. Many pundits think it’s the logical choice to take over Manitoba Telecom Services. Telus already competes with Manitoba Telecom in the latter’s home turf, the geography makes sense, and, perhaps most importantly, acquiring Manitoba Telecom would keep BCE from expanding even further. Telus would also be the natural buyer of Saskatchewan’s publicly owned telecom SaskTel, if the government of that province ever decided to sell.

Execution

A company needs more than just growth potential to be an excellent dividend stock. After all, there are hundreds of tech stocks with soaring revenues that aren’t accompanied by profits.

Telus’s management team has done exactly what they’ve promised. The company has spent aggressively on capital expenditures over the last few years, further expanding wireless service outside Alberta, its home base. Cash has also been spent upgrading fiber optic lines, so the company can sign up more television subscribers.

Both metrics are working. In 2012 Telus earned $10.85 billion in revenue. In 2015 that number was nicely higher, coming in at $12.43 billion. Net profit grew accordingly too, increasing from $1.84 per share to $2.29 per share in 2015. And remember, 2015’s profit was adversely affected by a $130 million one-time charge. Remove the charge, and earnings were closer to $2.50 per share.

Management has also made buying back shares a priority. Unlike other companies that buy back just enough shares to offset options given to management, Telus has made a real dent in the share count. On December 31, 2012, Telus had 655 million shares outstanding. At the end of 2015, that number was just 604 million.

Dividend growth

Telus’s growth potential and its proven ability to execute bodes well for investors looking for an ever-increasing stream of dividend payments.

Telus pays a current dividend of $0.44 per share each quarter, good enough for a 4.5% yield. The company has been increasing the dividend twice per year since 2012, starting with the second quarter of the year. Look for that trend to continue in 2016 with the dividend likely going up to $0.46 per quarter when first-quarter earnings are announced next week.

Investors don’t have to worry about Telus’s payout ratio either. Analysts are expecting 2016 earnings to increase to $2.68 per share, with further growth to $2.85 per share expected for 2017. If Telus continues its pace of increasing the dividend by two cents per share every second quarter, the payout ratio will still be approximately 70% by the end of 2017–and investors will have a yield on cost of 5.3% based on today’s price.

Telus is a great dividend stock. I’m not sure if it’s Canada’s finest, but it’s certainly in the conversation. Even if it isn’t Canada’s best dividend stock, it would still look good in your portfolio.

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 Nelson Smith has no position in any stocks mentioned.

More on Dividend Stocks

engineer at wind farm
Dividend Stocks

Making Your $20,000 Investment Work Harder for the Long Term

Building wealth doesn’t have to be complicated when you invest in strong, top dividend-paying stocks like these.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

4 Incredibly Cheap Real Estate Stocks to Buy Now

These four REITs are some of the best in Canada and all trade cheaply, making them some of the best…

Read more »

Dividend Stocks

The Best Way to Structure a $25,000 Portfolio for the Long Haul

Here are two high-yield dividend stocks that I would invest in for long-term passive income and capital gains.

Read more »

Hourglass and stock price chart
Dividend Stocks

3 Canadian Stocks to Buy With $7,000 and Never Sell

Looking for some Canadian stocks you can buy and never sell? Here are three picks for investors looking to put…

Read more »

dividend growth for passive income
Dividend Stocks

2 Unstoppable Dividend Stocks to Buy if There’s a Stock Market Sell-Off

These two dependable TSX dividend stocks could help you ride out any market storm with confidence and consistent passive income.

Read more »

Start line on the highway
Dividend Stocks

The Best Stocks to Invest $50,000 in Right Now

Looking for some of the best stocks to invest? Whether you have $50 or $50,000, this trio of options is…

Read more »

calculate and analyze stock
Dividend Stocks

2 Dividend Stocks That TFSA Investors Should Buy Now

Here's why TFSA investors should consider owning TSX dividend stocks such as CNR to generate outsized gains over the next…

Read more »

analyze data
Dividend Stocks

For $5,000 in Annual Dividends, Here’s How Many Shares of CIBC Stock You’ll Need

If you're looking for stable passive income, this dividend stock will certainly get you there.

Read more »