Telus (TSX:T) is a unique telecommunications giant that has a history of solid shareholder returns. These returns have come in the form of dividends as well as capital appreciation of Telus’s stock price. Today, Telus remains at the forefront of a strong future, buoyed by these strong returns and the company’s investment in the future.
Let’s explore the three main reasons we should invest in Telus stock.
Cash flow growth
Telus’s business model is one that has generated significant cash flow and free cash flow growth. In the five years ended 2022, for example, cash flow grew 19% to $4.8 billion. This equates to a five-year compound annual growth rate (CAGR) of 3.46%.
In addition to this, in Telus’s latest quarter, cash flow from operations came in at $1.3 billion, and its free cash flow increased 7.3% to $355 million.
These strong cash flow numbers have been driven by a 17% increase in customer subscriptions and 5.5% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Telus once again achieved leading customer retention rates, with a less than 1% churn and strong customer loyalty.
Looking ahead, this cash flow growth is expected to continue, with significant growth expected in 2024 and beyond. This will be driven by continued success in Telus Health and the company’s cost-cutting efforts. Increasing revenue and margins will drive this cash flow growth.
Dividend growth
Another very endearing part of the Telus story is its dividend history and its dividend goals. In the last 10 years, Telus’s annual dividend increased at a CAGR of 6.7% to $1.45. In its latest quarter, the company increased its dividend by 7.1%.
This increase was the company’s 25th consecutive increase in its quarterly dividend. Since 2004, Telus stock paid shareholders $17 per share in dividends; in the last 10 years, it’s paid out $11 per share in dividends.
Looking ahead, Telus is targeting 7-10% dividend growth. This expectation is backed by the company’s strong conviction in its free cash flow generating power in the years ahead.
Telus’s opportunities for the future
Beyond the next couple of years, Telus is also building strong long-term growth into its business. Telus Health and Telus International are two areas of growth that are charting new territory.
Telus Health is Telus’s response to a Canadian healthcare system that’s overloaded and technologically lacking. From virtual healthcare to electronic medical record solutions, Telus is stepping in to help solve these problems.
In the latest quarter, Telus Health achieved a 20% increase in its EBITDA. Also, virtual care memberships increased 40%. This is a testament to the demand that’s out there for Telus Health’s solutions. It’s also a testament to the type of growth that exists for this business. Management expects double-digit growth to continue over the medium to long term.
Investing in Telus stock: The bottom line
Telus’s stock price has increased almost 50% in the last 10 years. This is in addition to the $11 per share that was paid out in dividends during this period. Looking ahead, Telus’s growth profile is still very attractive, and it’s backed by strong cash flows and a strong balance sheet. I therefore think that it’s worth investing in Telus stock today in order to gain exposure to continued shareholder returns that are likely coming.
