Is Telus Stock a Buy in February 2023?

Telus (TSX:T) stock has a very high yield. But is it a buy?

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Telus (TSX:T) is among Canada’s highest-yielding telecommunications stocks. With a 4.92% yield, it can pay $4,920 per year if you invest $100,000 into it. It looks like a pretty enticing dividend play. But a stock’s reported yield doesn’t tell you everything you need to know to make an informed investment in it. Sometimes, a stock will have a yield that’s high but unsustainable.

For example, if a company has $50 per share in earnings and pays $100 per share in dividends, its payout is likely unsustainable.

Therefore, in order to know whether Telus stock is a good dividend buy in February 2023, we need to investigate its overall quality as a business. We can start by looking at what the company does and then move on to its financials.

What Telus does

Telus is a telecommunications company that offers

  • Phone plans;
  • Internet plans;
  • TV plans; and
  • A streaming plan called Stream+.

Telus’s Stream+ service lets the user get a number of different popular streaming services for one monthly fee. That includes Apple TV, Netflix, Discovery and Telus’s own streaming service. This bundled streaming service makes Telus an attractive stock for investors who want something a little more innovative than just conventional cable and phone service.

Having established what Telus does, it’s time to look at how the company is performing.

Recent earnings results

In its most recent quarter, Telus delivered

  • 347,000 customers — a 27,000 increase;
  • $4.6 billion in revenue — up 9.9%;
  • $551 million in net income — up 54%; and
  • $331 million in free cash flow — up 63.1%.

It was a pretty good release. Growth was positive on both the top and bottom line, and profit margins were strong. Based on this one quarter’s results, we’d conclude that Telus was a profitable and growing business. The company did encounter some issues in the COVID-19 lockdown era, which resulted in declining revenue for a while. Now, however, Telus is clearly bouncing back.

Long-term outlook

In addition to having put out a pretty good quarter, Telus also has a pretty strong long-term picture. The company operates in the Canadian telecommunications industry, which is very tightly regulated. Licenses are hard to get. Foreign competition is limited. A small handful of established players dominate the market. All of these factors tend to result in high profits for Canadian telecommunications firms.

As for Telus specifically, it has some unique advantages. One is the streaming service mentioned earlier, which is fairly unique among Canadian telcos. Another is Telus International.

Telus is a customer experience company that develops platforms that help brands connect with customers. A good example of Telus International’s services is its chatbot. You might have heard about ChatGPT, the AI-powered chatbot that answers questions you ask it. One of Telus International’s activities is building chatbots like that one. This is a very “buzzy” area right now, so Telus’s investments in it could lead to some interest in the stock.

Just remember that stock price moves based on hype don’t always lead to improved fundamentals and a good long-term stock performance.

Foolish takeaway

As we can see, Telus stock has a lot of things going for it. It has a high yield, its earnings are growing, and it is involved in innovative technologies. On the whole, it’s a reasonably attractive package. I would call it a worthy pick within the context of a well-diversified portfolio.

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 Button has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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