The best way to invest in dividend stocks is to keep buying small amounts whenever possible. Dividend stocks give returns to shareholders by paying a certain percentage of their cash flows as dividends. Their stock price is relatively less volatile, keeping your invested amount comparatively stable while giving out payouts. Not all dividend stocks have these features, but this large-cap dividend stock has what it takes to make you keep buying its shares hand over fist.
The dividend stock to buy hand over fist
Large-cap stocks that have a vast consumer base and are not worried about demand have the potential to keep paying dividends regularly. It is because companies can plan their projects and work out the math to get the desired yield. When you know you will get a certain amount of return on capital spending, you can plan your costs accordingly and have better control over profits.
Energy companies have the demand benefit, but their prices are regulated. Oil and other metals depend on global commodity prices. Telcos, on the other hand, set their prices as rates are not regulated. Canada’s telecom market has only three players, together commanding 86% market share. Telus Corporation (TSX:T) is the third largest telco providing wireline and wireless communication services to businesses and households.
While there is competition among the three players, they do not indulge in a price war and disrupt each other’s profits. The high capital needed to build the communications infrastructure is a huge entry barrier and does not attract new competition. Telus doesn’t have to worry about demand, as the communications system is the backbone of any economy. Thus, every country has its telco with no direct foreign competition.
However, the Justin Trudeau government has asked the telecom regulator to reduce internet prices and promote competition. The regulator might implement a rate regulation that benefits telcos and customers. A more affordable internet could boost average internet usage per user.
It could help Telus sustain its current dividend per share and grow dividends.
Why keep buying this dividend stock?
Telus Corporation has a big share in a long-term growth trend, albeit with phases of decline during a wider market bearishness. The 4G era made video calling and video streaming possible. The 5G era could make artificial intelligence at the edge possible. It could connect cars, robots, and drones to high-speed internet, allowing them to perform mission-critical tasks like driving cars, controlling traffic, and more. The secular trend of 5G is here to stay and benefit Telus. Notably, Telus has completed its network rollout.
You may keep buying Telus stock for three reasons:
- Safer dividends
- Less volatile stock price
- 3-7% dividend growth
If you had been investing $500 on the first of every month since 2018, you would have accumulated 1405 shares of Telus that pay $1.4 in dividend/share. Your $30,000 investment would be over $40,000 (1405 x $28.7), and you would be drawing over $1,950 (1405 x $1.4) in passive income. Your passive income from Telus shares could probably pay for your internet after a few more years.
Is now a good time to buy Telus shares?
Telus stock has slipped 15% since April 2022 as rising interest rates make capital expensive. Moreover, the Rogers–Shaw merger created a bigger telecom player. But as I said before, the entry barriers and robust demand for the internet make Telus stock a buy at every dip to accumulate shares at a lower value and lock in a 4.8% yield.
While Telus is a dividend stock to buy hand over fist, diversify your dividend portfolio across large and mid-cap stocks in different sectors like real estate and banks. A blend of high and low yields can enhance your overall portfolio yield.