Telus Corporation (TSX:T) stock has one of the highest dividend yields among TSX telecommunications stocks. At 5.23%, it’s well above average for the Toronto Stock Exchange. Most TSX Index funds currently yield a little over 3%, so T stock is a genuine high yield opportunity.
The question is, should you actually buy T stock for the high yield?
Just because a stock has a high yield based on last year’s dividends doesn’t mean it will be a good investment. A stock’s price can decline by an amount greater than what it pays out in dividends. A dividend can be cut. So, there are many ways for a high yield stock to give investors a poor experience.
Indeed, T stock investors have had a lacklustre experience of the last 12 months. In that period, T is down 20%, which is a much greater capital loss than the stock’s dividend can make up for. However, today could be a better time to buy than last Spring was. In this article, I will explore whether T stock is worth buying for the 5.2% dividend yield.
Why Telus stock has fallen
Telus stock has fallen about 20% over the last 12 months, for reasons including:
- Broader stock market volatility. The entire TSX Index is down over the last 12 months just like T – although to a lesser extent.
- Some poor earnings releases. In its most recent quarter, Telus missed analyst expectations on both revenue and EPS, while net income declined 60% year over year.
- Concerns about interest rates. Telecommunications stocks have relatively high debt levels and are negatively impacted by high interest rates. Telus listed “interest rates” as a risk factor in its most recent quarterly release.
All in all, there are some valid reasons for investors to be concerned about T stock. However, the company is still growing its revenue and is adding subscribers. Should interest rates fall or at least stabilize, it should be able to get back to positive growth in profit, too.
Telus’ dividend growth track record
Having looked at some factors impacting Telus’ business, it’s time to look at the stock’s dividend growth track record. A high yield today is pretty nice, but what you really want is a dividend that grows into the future. How has Telus done on this front over the last decade?
Reasonably but not exceptionally well. Over 10 years, it has grown its dividend by 8% per year, over the last five years it has grown the dividend by 6.6% per year, over the last three years it has grown the dividend by 6.4% per year. This is a pretty good dividend growth track record. If Telus can keep it up, then investors may someday see a yield-on-cost above 10%. Just remember that the growth rate has been slowing down, so it could take a while.
Foolish takeaway
Having looked at Telus’ fundamentals and dividend growth, it’s time to answer the question:
Should you buy T stock for the dividend?
On the whole, it looks like the stock could perform moderately well, but not extremely well. The company has a good competitive position and a high yield, but is very sensitive to interest rates. I don’t think anybody who buys this stock today will get bad results, but they probably won’t get phenomenal results either.
