Investors who are familiar with my writing style know that I like to start with a macro view of the world and the long-term trends that are shaping the lives of eight billion people on our planet. I then figure out how to play those trends for the best long-term stock portfolio returns.
One recent trend that’s gained a lot of momentum and looks to be here to stay is the social responsibility movement. Consumers and investors are focused on aligning themselves with companies that exhibit a high degree of ethical and environmentally-friendly behaviour and values.
To that end, I’m excited to explore Telus (TSX: T) in this new three-part article series. In this first article, I explore how Telus is subtly but consciously changing its company mission and why smart investors should pay attention.
The second and third articles in this three-part series will explore other aspects of Telus that make it an amazing investment to withstand a down market and increase your TFSA cash flow.
Telus is a social capitalism company
Telus is much more than a telecommunications company and it wants the world to know that. Telus describes itself as your company, where the your refers to investors and customers. This direct and deliberate use of language makes for familiarity — a personal touch.
Telus also knows that years and years of using cuddly animals in its marketing and branding has created significant value because customers see Telus as a company that they can relate to versus just an impersonal corporate giant.
This is extremely important in a day and age where consumer habits change fast, and companies that can’t find ways to relate to their customers are frozen out quickly.
Telus has expanded its company mission to helping to improve the social, economic and health outcomes of Canadians while also driving value for shareholders. This change is very good for investors because Telus is signaling a broader focus beyond telecommunications, which makes a lot of sense given its push into healthcare and other broader business technology services.
A sharp focus on the healthcare vertical
One of the big reasons that Telus differs from its competitors is its push into healthcare. Telus is the leading provider of the electronic medical records used by physicians and pharmacists around the country to provide better care to their patients through secure access to patient files using their proprietary technology.
Telus has also created a service offering for employers that want to provide innovative health and wellness solutions to their employees through its Medisys-on-Demand virtual care service, as well as its investment in Beacon, a digital mental health support service.
Telus realized a few years back that healthcare in this great country was at a crossroads, with a lack of innovative patient care solutions with people at the heart of it all.
While other telecommunication companies plowed resources into media assets and other areas, Telus zoomed in on attacking everyday problems impacting the lives of people.
Social capitalism translates into cash flow
Telus has proven that its focus on social capitalism is working and translates into real cash. Investors who read my articles will know that I prefer to focus on cash flow metrics and love companies that can show an upward trend in their operating cash flow (OCF) or better yet, free cash flow (FCF).
Telus is a big winner in this department, with a 20% growth in FCF before income taxes going from $1,157 million to $1,394 million between 2017 and 2018.
What’s even better is that this trend seems to be continuing in 2019, with $950 million in FCF before income taxes for the first half of the year, which likely means that its full-year 2019 FCF before income taxes will be higher than in 2018.
The final verdict
I am just getting started with the Telus story in this first article of the three-part series, but smart investors will already see that Telus has the ability to innovate, put people at the heart of its company and translate this strategy into real cash.
At the time of writing, the stock price is hovering around $47 with a forward P/E ratio of about 15, a reasonable valuation for a fantastic long-term stock. Smart investors will do very well to pick up shares at these price levels or even lower if possible and let this cash flow machine fund their TFSA for the next few decades.
