Telus Corporation (TSX:T)(NYSE:TU) is a fantastic dividend-growth king that many income investors should feel safe having at the core of their portfolios. The stock has been flat for over two years now, thanks to a slowdown in defensive stocks. We’re entering a period of increasing interest rates, and that’s going to put long-term pressure on the telecoms, but that doesn’t mean you should completely forget about telecom stocks.
I think you should take a contrarian stance and actually pick up shares of a high-quality telecom like Telus so that you can solidify your defensive position to better prepare yourself for a market downturn. It’s not a mystery that we’re in the late stages of an old bull market, but the fear gauge is down, and many investors have been increasingly bullish.
Everyone is greedy right now, and that’s exactly why you should be thinking about buying defensive holdings like telecoms now before everyone breaks into a sudden panic. Nobody knows when the next crash will happen, but when it does happen, it’ll probably already be too late to get a good deal on defensive positions for your portfolio.
Telus took over five years to recover from the crash during the Financial Crisis, how is Telus a way to protect yourself from the next crash?
Sure, the stock of Telus went crumbling, but unlike most other companies, Telus consistently raised its already generous dividend by a huge amount during the crash and the steady rebound which followed.
If you bought shares on the way down, or just held on, you’d profit big time from dividend payments while you patiently waited for the stock to recover. For income investors like retirees, this kind of dividend stability is extremely important.
The company has also been returning a lot of wealth back into the pockets of shareholders, not only through dividend raises but by buying back millions of shares.
Telus is looking to stabilize its dividend even further by focusing on customer retention initiatives. Telus is a leader in customer satisfaction with a top-notch customer service segment, and I believe this is an underrated part of the business that will allow the company to protect its subscriber base from competitors.
Telus currently trades at a 21.3 price-to-earnings, and a 3.3 price-to-book. Both of which are slightly higher than the company’s five-year historical average multiples of 17.4, and 2.8 respectively. While this may seem pricey, I think it’s a fair price to pay considering how aggressive the company has been at returning cash back to shareholders.
Buy the stock now and collect the growing 4.3% dividend yield while you wait for the stock to break out.
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Fool contributor Joey Frenette owns shares of Telus Corporation.