The Motley Fool

Dividend Investors: Should Telus Corporation (TSX:T) Be on Your Buy List?

Dividend investors are searching for top stocks with reliable and growing distributions. Ideally, these companies also offer a shot at some nice upside gains.

Let’s take a look at Telus (TSX:T)(NYSE:TU) to see if it is an attractive pick today.

New markets

Rising interest rates normally have a negative impact of telecom stocks, and the broader sector has felt some pain in 2018, yet Telus is trading close to an all-time high, and more gains could be on the way.

The company is Canada’s fastest-growing national player in the communications market, providing mobile, internet, TV, home security, and entertainment products and services to 13 million subscribers across the country. Telus is also Canada’s leading healthcare IT provider, and this is where things get interesting.

The company has quietly built a dominant position in the digital health market, acquiring electronic medical records companies across the country in recent years.

In May, Telus also purchased the Symbility Health division from Symbility Solutions to beef up its digital health management tools for insurance companies.

Earlier this month, Telus announced it recently closed a $100 million deal to acquire 30 boutique health clinics operated by Medisys. The move gives Telus the ability to roll out its suite of digital health products to the specialty clinics that cater to corporate clients. According to Telus, 4,500 companies use Medisys clinics. It makes sense, as companies don’t want their high-paid executives waiting around in the ER when they should be running the business.

The long-term potential is compelling, and Telus Health, which is a minor part of the overall revenue picture today, could become a significant high-margin contributor to earnings. Tech giants in the United States are getting into the health game, so there is obviously an opportunity to disrupt the system using innovative digital tools.

Steady communications growth

In the meantime, the mobile and wireline businesses continue to perform very well.

Telus reported year-over-year Q2 revenue growth of 5.3%, and EBITDA growth of 3.6%. Free cash flow came in at $329 million, representing a 37% gain. Telus added 135,000 net new customers in the quarter, with solid gains in both the postpaid wireless operations and the wireline group.

The company puts significant efforts into delivering quality customer service, and that is showing up in the churn rate, which was an industry-low 0.83% for the quarter.

Dividends

Telus has a strong track record of dividend growth and is forecasting hikes of 7-10% per year through 2019. The current distribution provides a yield of 4.3%.

Should you buy?

Telus provides investors with reliable and steady dividends through the traditional communications businesses, while offering exposure to a potential windfall in the rapidly changing digital health sector. If you are looking for a buy-and-hold pick for a dividend portfolio, Telus looks attractive today.

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 stock 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.