The broader stock markets took off on Wednesday as the U.S. Federal Reserve (the Fed) shed light on its timing for potential rate cuts for 2024.
Indeed, we could be in for three cuts in the new year. And though this may not be a huge surprise to many, I do think investors were surprised by just how dovish a tilt Fed chair Jerome Powell took. As the economy continues to slow, rate cuts may very well be the boost that the rate-sensitive stocks need to fuel their rally to the next level.
Telus stock has been in rally mode of late!
Undoubtedly, Canadian telecom stocks have been feeling the burden of high rates on their shoulders. Telus (TSX:T) stock popped around 1.4% on Wednesday, thanks in part to a late-session rally sparked by Fed comments. Indeed, rates certainly seem to have peaked, and as they head lower, I think it could prove difficult to stop a sustained rally in some of Canada’s most battered dividend plays. One of my favourites in the space has to be Telus stock, which still offers an impressive dividend yield of 6.12%.
As share prices rise, expect the dividend yield to fall. Even if Telus has a dividend hike up its sleeves for 2024, I do think its days of yielding more than 6% are drawing to a close.
Indeed, just because rates are coming down doesn’t mean Telus or any other telecom is out of the woods. There’s still a potential economic slowdown to grapple with going into 2024. Regardless, I do think Telus has what it takes to make it through a contraction that may already be priced in right here.
Telus stock: Looks like a great value at around $25, but only if you’re in it for the long haul
If you’re looking for durable passive income and are willing to hang onto a stock for at least five years, Telus stock stands out as a great buy in my books. That said, there’s likely going to be plenty of volatility in the first half of 2024 as economic data steadily flows in.
Telus and the broader telecom scene stand to benefit over the long run from the continued demand for mobile internet connectivity. Sure, a recession could curb demand for an amount of time.
However, as mixed-reality headsets (goggles, glasses, etc.) and the next generation of IoT (Internet of Things) devices become more widespread, it’s hard to make a case for a declining appetite for mobile data.
Indeed, the world seems to be getting more connected with time. And that’s a trend that could help power robust results for the telecoms over the course of the next decade. Also, let’s not forget about the many newcomers to Canada who will be in need of mobile data plans. All considered, things are looking quite bright for the ailing telecoms as they look to finally break out of their funk.
Bottom line: T stock still looks like a buy
In the meantime, a recession is sure to bring forth turbulence in both directions. When it comes to a stock like Telus, I’d look to buy on any sudden bumps in the road. Though I do think Telus stock has finally bottomed out, given the likelihood of peak interest rates, investors shouldn’t expect any sort of V-shaped recovery. Depending on where the economy stands next year, the recovery trajectory could prove choppy.
