When it comes to buying a good dividend stock from Canada’s small and highly consolidated telecom sector, Telus (TSX:T) is rarely the first choice. Most investors lean towards the more generous BCE, the largest telecom company in Canada by market cap that offers a relatively higher yield.
Still, Telus is not just one of the top stocks trading on the TSX right now; there are factors in play that may allow the company to dominate the market in the coming years.
Telus as a stock
One of the best reasons to buy Telus over other telecom stocks in Canada is the overall return potential it offers. In the years between the Great Recession and before the pandemic, Telus experienced compelling and relatively consistent growth, going up about 250% in less than 12 years.
The numbers are not attractive now because the stock has lost over a third of its value in about one-and-a-half years. The company announced a major layoff following a weak earnings report. However, this discount has enhanced another attraction of the stock: its yield.
The last time Telus had a yield of over 6% was in 2015. Now, it’s offering dividends at a juicy yield of about 6.4%. The payout ratio is not ideal per se, but that hasn’t stopped the company before, and it has maintained a stellar history of growing its payouts.
One major point of concern is the valuation, which still hasn’t come down to a reasonable level. If you like being cautious, you may consider waiting and gaining a better picture of its financials before making an investment.
Telus as a telecom giant
Telus may not stand on top of the small list of 5G stocks in Canada, but it’s diversifying its telecom business more aggressively than other telecom companies in Canada. The three main areas of note are home security, telehealth, and artificial intelligence.
Telus has emerged as one of the largest, most prominent players in the home security business, which may give it an edge when smart homes and the Internet of Things (IoT) become more commonplace. Telus’s home security customers may be more receptive to its IoT devices and services, providing the company access to a ready-made market.
Telehealth is also a thriving business. It experienced a boost during COVID, and the traction may have slowed down, but as complementary technologies advance, telehealth may experience solid growth.
AI is already changing the world in new and unprecedented ways, and even though the current overlap of Telus and AI is through its tech subsidiary, the company may emerge as an early AI adapter in the Canadian telecom industry.
Foolish takeaway
Telus is a promising prospect, and if it delivers on all of its promises, it may emerge as a powerful company and a solid stock set to dominate the TSX. But even if it underplays, it’s still a compelling investment for the long term, especially now when you can lock in an attractive yield.
