Is TELUS Stock a Buy in December 2022?

Conservative stock investors should consider buying some TELUS shares, currently trading at the low end of their 52-week trading range.

| More on:

There’s something to celebrate about high inflation and rising interest rates after all. Investors can now get a risk-free rate of return of north of 5% from guaranteed investment certificates (GICs). That’s about where the interest rate of a one-year non-redeemable GIC is right now.

If you’re still not happy with that, you can consider taking more risk by investing in dividend stocks like TELUS (TSX:T). By all means, TELUS is not a risky stock. If you compare it to the majority of stocks on the TSX, you’ll realize that it’s quite defensive.

TELUS stock’s attractive dividend

One of TELUS stock’s attractive attributes is its dividend. TELUS is a proud Canadian Dividend Aristocrat. It has paid increasing dividends for about 19 consecutive years. This is a very solid dividend track record for a TSX stock. For reference, its five-year dividend growth rate is 6.7%.

Management aims to pay out 60–75% of its free cash flow as healthy dividends. Its cash flows are quite predictable so the dividend stock currently targets dividend growth of 7–10% per year through 2025.

At writing, its dividend yield is north of 5%. Other than beating the risk-free GIC rate, TELUS stock can also provide upside potential. Oh, and of course, the eligible dividend income is more favourably taxed than interest income in taxable accounts.

Its growth prospects should magnetize you as well

The Canadian telecom has an above-average growth rate versus the industry. This is why it also commands a relatively high price-to-earnings ratio. The company has invested in higher-growth areas resulting in higher revenue growth.

Its stake in TELUS International, which designs, builds, and delivers digital customer experience solutions, pulls much of the weight of that growth. Should the growth of this business slow down, it would also weigh on TELUS’s shares. Needless to say, TELUS is a lower-risk stock because of the expected stable returns from its dividend while providing relatively high stock price gains potential versus its peers.

Currently, analysts project TELUS could grow its earnings per share by about 18% per year over the next three to five years, which is approximately 70% higher than the industry average.

Valuation

For its higher growth prospects, accordingly, TELUS stock trades at a premium valuation. At $27.40 per share at writing, the big Canadian telecom stock trades at about 19.6 times forward earnings. This is a premium of about 15% to the industry average. Given the stability of the stock, its nice yield, and its higher growth potential, conservative long-term investors will probably find it worth it to park their money in T stock.

Should you buy TELUS stock in December 2022?

Analysts think the stock is undervalued by 17%. This is a decent discount for a defensive dividend stock that pays a good income. Furthermore, TELUS offers above-average growth. Investors can hold the stock in their non-registered accounts for favourably taxed dividend income so as to leave room in registered accounts for fixed-income investments such as bonds and GICs. Otherwise, if you have room, TFSAs and RESPs are also good places to hold TELUS shares.

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.

ool contributor Kay Ng has positions in TELUS and Telus International. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

I’m Betting My Future on This Magnificent Canadian Dividend Giant

This solid utility stock could have a place in any investor's portfolio whether they're looking for income or total returns.

Read more »

Canadian dollars are printed
Dividend Stocks

This 1 Stock Could Turn Your $10,000 TFSA Into a Tax-Free Goldmine

Stop worrying and just invest with this easy buy of a Canadian stock that just keeps growing.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Load My TFSA With This 6% Dividend Giant

A high-yield TSX stock with an impressive dividend history is an ideal holding in a TFSA.

Read more »

concept of real estate evaluation
Dividend Stocks

Why the Market Should Stop Hating on This Reliable REIT

You can get a lot of dividend income with an investment in Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Max Your TFSA Impact: 4 Dividend Stocks to Buy and Hold Forever

Adding these TSX dividend stocks to your TFSA can maximize your portfolio's income potential and compound your returns over time.

Read more »

man touches brain to show a good idea
Dividend Stocks

This 6% Yield Has Survived Every Market Crash Since 1995

This top TSX stock boasts a yield of over 6% and a dividend track record that has weathered every market…

Read more »

Income and growth financial chart
Dividend Stocks

This Canadian Retail Stock Yields 3.8% and Keeps Expanding

A growing dividend, rising share price, and big strategic moves make this top Canadian retail stock worth owning for the…

Read more »

Forklift in a warehouse
Dividend Stocks

It’s Possible! Build a $250,000 TFSA Using Just 2 Dividend Stocks

Want a $250,000 TFSA that pays out monthly? These two solid REITs pay monthly distributions.

Read more »