TELUS (TSX:T) is a blue-chip stock that doesn’t disappoint income investors. It just raised its quarterly dividend again. The hike of 3.6% from its prior-quarter dividend appears to be small. However, investors should note that it equates to a 7.4% increase from a year ago, because the stock tends to increase its dividend every half a year.
The dividend raise marks TELUS stock’s dividend-growth streak of 20 consecutive years! Its five-year dividend-growth rate is 6.6%. Management aims to exceed this rate, as it targets a dividend-growth rate of 7-10% per year through 2025. The company is tuning down its capital investments that will lead to higher free cash flow generation for solid dividend increases.
TELUS’s recent press release highlighted that “since 2004, [it] has returned more $23 billion to shareholders, including over $18 billion in dividends, representing over $16 per share.” It goes to show that given enough time, TELUS common stockholders can very well get their entire investment back from dividends alone. For example, assuming the dividend stock were to increase its dividend by 7% per year, buyers of the stock in their Tax-Free Savings Account today would get their entire investment back by 2035.
TELUS just reported its first-quarter results last week. Its operating revenue rose 16% to $4,925 million. However, operating expenses jumped 23% to $4,365 million. Its adjusted net income fell 7% to $386 million. However, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), a cash flow proxy, climbed 11% to $1,779 million. Capital investments fell 14% to $713 million, leading to free cash flow of $535 million, up 29% year over year.
The company also pointed out that the total telecom subscriber connections increased by 7% to 18.2 million. As well, its TELUS Health business is in an early stage of growth, covering 67 million healthcare lives, which tripled from a year ago.
TELUS’s 2023 outlook
Management continues to forecast good growth for the company as well as strong cash flow generation this year:
- Operating revenue growth of 11-14%
- Adjusted EBITDA growth of 9.5-11%
- Capital investments of $2.6 billion (which would be down 29% from 2022)
- Free cash flow of $2.0 billion
For reference, TELUS’s dividend payments were approximately $1.2 billion in the trailing 12 months. Projecting similar dividend growth as recently, its 2023 payout ratio should be roughly 64% of free cash flow.
Because of TELUS’s predictability, it rarely goes on sale. Right now, at $28.13 per share at writing, analysts believe it trades at a discount of only 10% with a 12-month price target of $31.40. The predictability of its shareholder returns comes from its solid dividend yield of close to 5.2% and growing dividends. The stock and its operating cash flow generation tend to be resilient through economic cycles as well.
Therefore, TELUS stock serves as a good anchor or core holding for a diversified portfolio. Conservative investors should highly consider holding the stock as well. If given the opportunity, investors can aim to pick up shares at or below $27 per share for a bigger margin of safety.