TFSA Investors: This Telecom Stock Has Powerful Appeal for You

Telus Corp. (TSX:T)(NYSE:TU) is facing some short-term risks, but it’s a great dividend stock for TFSA investors. Here is why.

| More on:
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

Image source: Getty Images

Canadian telecom stocks operate in a sweet spot where the competition is not that intense as you’ll witness south of the border. They are gradually expanding their customer base with strong earnings growth.

These qualities make this sector a lucrative place for investors, such as those who invest through their Tax Free Savings Account (TFSA), to build wealth over the long run. At some point last year, these dividend-paying stocks weren’t attracting investors, as climbing bond yields diminished their investment appeal.

But with the central bank on the sideline for at least this year, their high dividend yields and growing payouts are offering an attractive preposition. Among Canada’s big three telecom companies, Telus Corp. (TSX:T)(NYSE:TU) is certainly a good option to consider if you have some space available in your TFSA.

Strong growth momentum

In an earnings announcement on Feb. 14, Telus again showed that demand for its services remain strong and that it’s adding more subscribers to its network. For the fourth quarter of 2018, Telus added 112,000 new wireless contract subscribers in the period, ahead of average forecasts for about 105,000.

On the residential side of its business, Telus added more subscribers than expected, with 24,000 new television customers and 28,000 new internet clients.

Profit at the company increased by 4% to $368-million, or $0.60 a share. On an adjusted basis, Telus earned $0.69 cents a share, ahead of analyst estimates. Revenue increased by 6.3% to $3.76-billion as the company booked gains from data services on both wireless and home internet.

Potential bump in the road

If you want to buy Telus stock, then you should be aware of one risk that this company is facing due to a possible ban for using equipment by Chinese vendor Huawei Technologies Co. Ltd. Telus has a long relationship with Huawei and plans to use its gear in the deployment of its 5G networks.

Canada’s telecom operators, including Telus, have been dragged into this trade dispute between the U.S. and China. Telus has publicly warned of a material risk of higher costs if the Canadian government bans wireless carriers from working with Huawei.

Ottawa is conducting a cybersecurity review of the use of the Chinese company’s gear for 5G networks. Three of Canada’s Five Eyes intelligence allies – the United States, New Zealand and Australia – have already announced restrictions on Huawei equipment for the build-out of next-generation cellular service.

In Britain, the government is also reviewing its telecom-equipment supply chain and whether to continue using Huawei gear.

 Bottom line

Telus share, at $46.74, have slightly underperformed other operators in the current rally for dividend paying companies due to its exposure to Huawei equipment. But in my view, the government will compensate telecom operators for any potential losses, or an escalation of costs if it takes a political decision and bans Huawei equipment sale.

For long-term TFSA investors, any dip in Telus stock should be a buying opportunity to take advantage of its growing dividend yield. Telus currently pays $2.18 a share annual payout, yielding 4.65%.

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 Haris Anwar has no position in any stock mentioned.

More on Dividend Stocks

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »