1 Dividend Stock Down 30% to Buy Right Now

This top TSX dividend-growth stock looks oversold.

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Investors can still find oversold TSX dividend stocks to add to a self-directed Tax-Free Savings Account (TFSA) focused on passive income or a Registered Retirement Savings Plan (RRSP) targeting total returns.

Telus

Telus (TSX:T) trades for less than $24 per share at the time of writing compared to more than $34 at the high point in 2022.

The decline is largely due to rising interest rates over the past two years. Telus uses debt as part of its funding strategy to cover the cost of its capital program. Building mobile and fibre networks is expensive, and communications companies have to continually upgrade systems to ensure they can deliver the broadband capacity and speeds required by customers. Telus planned to spend more than $2.5 billion in 2023 on capital initiatives. High interest rates drive up borrowing costs that can eat into profits.

Investors have also become concerned about a weak performance by Telus International, the subsidiary that provides global firms with multilingual customer care and IT services. Telus cut about 6,000 jobs in 2023 as it streamlined operations and adjusted to the challenges faced by the international business that it spun off in an initial public offering in 2021. The share price of TIXT was as high as $48 in late 2021 but currently trades near $11.

Finally, recent pressure on the stock might be due to concerns that price wars in the Canadian mobile segment in November could have a negative impact on revenue in 2024.

These are all headwinds for Telus, but the drop in the share price appears overdone. Telus lowered its 2023 guidance last summer, but the company is still expected to deliver consolidated revenue growth of at least 9.5% for the year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should still be 7-8% higher than 2022. The core mobile and internet subscription businesses continue to grow at a solid pace and are performing well.

Telus International performed better in the back half of 2023, so most of the pain should be in the rearview mirror. The division accounts for about 10% of adjusted EBITDA for Telus, so the market reaction to its troubles might have been too severe.

Looking ahead, the Telus Health group has the potential to be a growth engine for the business in the coming years. Telus purchased LifeWorks for $2.3 billion in 2022. The deal expanded the global footprint of Telus Health, which provides digital services for corporate healthcare plans.

Dividends

Telus raised the dividend in 2023. The board has increased the payout annually for more than two decades, and ongoing distribution growth should be on the way. Investors who buy the stock at the current level can get a 6.4% dividend yield.

Should you buy Telus now?

Ongoing volatility should be expected, especially if interest rates remain at current levels through all of 2024 rather than starting to decline as is widely expected by the market. That being said, Telus looks cheap right now for a buy-and-hold portfolio focused on passive income or total returns. The dividend should continue to grow, and investors get paid a good yield today to ride out any additional turbulence.

If you have some cash to put to work, this stock deserves to be on your radar.

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.

The Motley Fool recommends TELUS and Telus International. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

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