Telus (TSX:T) pulled back considerably in recent months and is now down about 30% from the 2022 high. Contrarian investors seeking dividend income and a shot at decent capital gains are wondering if Telus stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Telus Q3 2023 earnings
Telus reported a 75% drop in net income in the third quarter (Q3) of 2023 compared to the same period last year. On the surface, this looks bad, but the company is actually performing well in a challenging environment. Telus generated 7.2% growth in operating revenue and a 7.3% increase in free cash flow compared to Q3 2022, supported by the wireless and wireline operations.
Part of the profits hit came from expenses tied to staff reductions and an increase in borrowing costs caused by rising interest rates.
Weaker 2023 revenue at the Telus International subsidiary forced Telus to reduce its guidance for the year, but the company still expects to deliver operating revenue growth of at least 9.5% in 2023, driven by the strength in the core mobile and internet segments. In addition, the Telus Health business, which provides solutions to Canadian and international companies with employee health plans, is growing. Digital health transactions increased 5% compared to Q3 2022 and the virtual care membership jumped 40% to 5.5 million. Telus expects Telus Health to deliver double-digit growth over the coming years.
Telus stock
Telus trades for less than $24 at the time of writing compared to around $34 at the peak last year.
The drop appears overdone. Telus continues to see solid growth in the mobile and internet segments that drive the bulk of the company’s revenue. These groups provide essential services to businesses and households, so they should hold up well during an economic downturn.
Dividends
Telus has increased the dividend annually for more than two decades and often raises the payout twice during the year. At the current share price, investors can get a 6.3% dividend yield from Telus stock.
Is Telus a buy today?
Bargain hunters started buying Telus in recent weeks, sending the stock up more than 10% from the low in early October. Ongoing volatility should be expected until there is a clear signal that the Bank of Canada is done raising interest rates. However, investors might want to consider adding Telus at this level. The stock still looks cheap, and you get paid well to ride out additional market turbulence.
