Is Telus Stock a Buy in September 2023?

Telus stock is a top TSX telecom company and offers a dividend yield of over 6%. But is it a good buy today?

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Telus (TSX:T) is a Canadian telecom heavyweight and one of the largest companies in the country. It trades at an enterprise value of $61 billion and currently offers shareholders a tasty dividend yield of 6.1%.

Down 31% from all-time highs, the Canadian tech stock has returned over 131% to shareholders in the past 10 years after adjusting for dividends. Let’s see if Telus stock can continue to outpace the broader markets in 2023 and beyond.

Is Telus stock a buy, sell, or hold?

Among the three biggest wireless service providers in Canada, Telus has nine million mobile phone subscribers, accounting for 30% of the total market. It is the leading exchange carrier in the Western Canadian provinces of Alberta and British Columbia, where the company also provides internet, television, and landline phone services.

Additionally, Telus has a small wireless presence in eastern Quebec and is expanding its fibre wireline footprint, as it upgrades from the legacy copper network.

Telus continues to enhance its 5G and PureFibre networks, which should result in higher customer engagement rates and stable cash flows. It aims to drive profitable top-line growth by leveraging its attractive bundled product offerings and a wide economic moat.

The telecom giant also emphasizes the importance of maintaining a robust balance sheet and investment-grade credit rating, enabling easier access to capital markets.

In the second quarter (Q2) of 2023, total customer growth for Telus stood at 293,000 due to healthy demand across mobility and fixed services businesses. This included 110,000 mobile phone net additions, which was the second-best quarter since 2010. Moreover, connected device net additions grew by 124,000, allowing the company to end Q2 with a blended churn of 0.91% and average revenue per user growth of 1.8%.

An expansion in the customer base allowed Telus to increase operating revenue by 13% year over year while free cash flow grew by 36%.

What’s next for Telus stock price and investors?

The telecom sector is fairly recession proof, which results in companies reporting predictable cash flows across business cycles. Telus has returned over $3 billion to shareholders via dividends and share buybacks in the past two years, increasing the total shareholder yield significantly.

Telus increased its quarterly dividends by 7.4% to $0.3636 per share. In the last 28 years, Telus stock has raised dividends by 5.5% annually, making it an attractive buy for income-seeking investors.

Telus now estimates free cash flow of $1.5 billion in 2023, despite higher restructuring costs related to cost efficiency programs, which were implemented to drive earnings before interest, tax, depreciation, and amortization expansion, margin accretion, and cash flow growth.

Telus seeks to reduce its employee count by 6,000, resulting in annual savings of $325 million, while capital expenditures are forecast at $2.6 billion this year.

Telus’s capital expenditure investments will be a key driver of cash flows, which should also result in dividend hikes. Priced at 20 times forward earnings, Telus stock trades at a reasonable valuation, given its tasty dividend yield.

Analysts tracking Telus stock remain bullish and expect shares to surge by 20% in the next 12 months. After adjusting for dividends, total returns might be closer to 26%.

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 Aditya Raghunath 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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