Telus (TSX: T) is down 10% in the past year and is off about 30% from the 2022 high. Contrarian investors are wondering if Telus stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividend income and total returns.
Telus overview
Telus is a major Canadian communications company with a current market capitalization of nearly $35 billion. The company primarily provides wireless and wireline communications services to Canadian residential and business customers.
Telus avoided the temptation to spend billions of dollars on media assets over the past decade, unlike its large competitors. Analysts previously wondered if the lack of a television network and specialty channels would hurt the company, but that doesn’t seem to be the case. In fact, the traditional media segments are now struggling to attract advertising revenue amid competition from digital alternatives.
Telus has instead gone a different route. The company is growing its Telus Health business quickly through acquisitions and organic expansion, supplying digital health solutions targeted at global businesses with employee benefit programs.
Telus Agriculture expanded into the full consumer goods segment and now focuses on making the entire food value chain from producer to retailer more efficient and effective.
Telus International (TSX: TIXT) was spun out via an initial public offering in early 2021. The business provides multi-lingual call services and IT services to global firms. TIXT ran into revenue headwinds in the first half of 2023 amid a slowdown in client spending. The difficulties forced Telus to reduce its guidance for 2023, and the drop in the TIXT share price by 60% over the past 12 months has contributed to the weakness in Telus stock.
Financial results
Telus said it expects 2023 consolidated revenue to rise by about 10% compared to the previous year and the updated guidance still called for growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of at least 7%. These are decent results in a challenging economic climate.
Telus thinks the worst of the issues for TIXT are in the rearview mirror. The parent company trimmed staff by 6,000 in 2023, so expenses will be lower this year. Market reaction to the TIXT problems might have been overblown. The division only represents about 10% of total EBITDA.
Telus continues to see steady growth in the core mobile and internet subscription services. These are needed by businesses and homeowners, regardless of the state of the economy, so Telus should be a good stock to own during a recession.
Dividend
Telus has increased the dividend annually for more than two decades. At the current share price, investors can get a 6.2% dividend yield.
Is Telus too cheap to ignore?
Ongoing volatility should be expected until there is clear evidence that the Bank of Canada is going to start cutting interest rates. That being said, Telus looks cheap today, and investors get paid a good yield to wait for a rebound. If you have some cash to put to work, Telus deserves to be on your radar.
