Telus (TSX:T) stock and the rest of the telecoms have been in a world of pain in recent months. The pains worsened in September, and an October turnaround now seems like pretty wishful thinking. Now, there are huge headwinds facing the telecoms in Canada and south of the border. As rates continue to surge, the telecom stocks could continue to sink — perhaps all the way into the depths of a recession.
Indeed, it seems like a bottom is far off as negative momentum continues to pick up in shares of Telus and its peers. Today, T stock is fresh off a nosedive, bringing the stock down more than 37% from its all-time high briefly touched last year.
Though Telus has a reputation as a steady dividend payer for risk-averse income investors, the stock has been nothing short of a tumultuous ride. Even after shedding more than one-third of its value in just over a year’s time, the stock still seems more or less fully valued at 19.79 times trailing price to earnings (P/E).
Telus stock: A painful ride, but a bottom may still be off as telecom pressures mount
For investors who’ve bought Telus stock at any point over the past five years, that’s just plain disheartening. Although I expect the tides will eventually turn in their favour, there could be more downside, as Canada’s economy wanders into a recession year.
For now, nobody knows how steep the recession will be (if it’s still on the table), how long it will last (a year or more?), and what the recovery will look like (don’t bet on a V-shaped bounce like the one we had after the stock market crash of 2020). At this juncture, it seems pretty reckless to be reaching out in an attempt to catch any of the falling knives in the telecom sector.
As headwinds mount, the million-dollar question for investors is if it’s time to cut losses in Telus stock or add to a position on recent weakness. As it stands, I’d rather be a buyer of shares, even though shares aren’t exactly yet a deep-value bargain. I think the sky-high dividend yield, currently sitting at 6.6%, is drawing in some brave dip buyers who may not be in the name for value.
The dividend looks enticing and safe, but at what cost?
While Telus stock’s dividend looks safe, it could take a while before the stock is able to breach new highs again. For now, headwinds seem too steep to buy a massive position right here at $21.50 per share.
If you’re keen on a high yielder and are willing to ride out what could be another few quarters of rough results, I’d buy a quarter position here with the intention of buying three more quarterly positions gradually over the next year.
It’s impossible to catch a bottom in any stock that’s in free fall. However, I believe you can mitigate risks and average a cost basis that’s pretty decent by being an incremental buyer over time. Don’t time the market, and don’t try to be a hero. Instead, nibble shares today and plan to nibble on more should shares fall further.
The Foolish bottom line on Telus stock
Telus is still a great company. In fact, I think it’s one of the best managed in Canada. That said, the industry faces challenges over the year ahead. So, do be ready to roll with the punches if you’re enticed by the yields, as even higher rates and recession jitters could drag T stock below $20 over the coming months.
