Indecisive about where to invest in the Canadian stock market in February 2024? Magna International (TSX:MG) stock and TELUS Corporation (TSX:T) are two blue-chip dividend stocks vying for your investment dollars. Whether you seek outsized dividend yields for passive income or capital growth from auto parts innovation or cutting-edge telecom solutions, this comprehensive guide could help you make an informed investment decision.
Let’s dive in.
TELUS
TELUS is a $30 billion Canadian telecom stock showcasing its competitive strength in a mature industry through technology-driven innovations. The telco has significantly diversified its revenue and earnings over the past decade, moving away from pure telecom sources. During the first nine months of 2023, 28.3% of its total revenue came from non-telecom sources driven by technology services. While this diversification brings growth, it also introduces some cyclicality into the company’s finances.
Despite this, TELUS continues to make satisfactory customer gains and average revenue upgrades in its legacy telecom business lines. Between October 2022 and September 2023, the company’s total telecom subscriber base expanded by 7.2%, adding 1,265,000 new subscribers. This resilient telecom business ensures smooth cash flow generation and supports TELUS stock’s juicy dividend.
What makes TELUS stock a good buy in February?
The biggest attraction of investing in TELUS stock is its impressive 6.2% dividend yield, which grows twice every year. Management plans to raise dividends semi-annually through 2025.
Under the company’s May 2022 policy update, dividends will increase semi-annually with a target annual increase of between 7% and 10% until 2025. The dividend policy aims to pay out 60% to 75% of free cash flow prospectively. However, as of September 30, 2023, the company had paid out 88% of historical free cash flow, primarily due to accelerated capital investments. Management expects the payout rate to fall back within the policy range going forward, but investors should remain vigilant.
In the past five years, the dividend aristocrat achieved an average dividend growth rate of 6.7%, surpassing its industry peers.
Looking ahead, TELUS’s fourth-quarter earnings and 2024 financial guidance in February could lead to short-term volatility if recent weaknesses in Europe persists. While TELUS experienced a 7.2% increase in quarterly revenue, its net income dropped by 75% in the third quarter of 2023. However, this decline was mainly due to non-recurring restructuring costs.
Long-term, TELUS stock has the potential for steady growth as its resilient Canadian telecom business generates positive cash flows. Additionally, as revenue growth returns to its Digitally-led Customer Experiences (DLCX) segment, anchored by TELUS International’s cyclical business, the stock’s value could further increase. This segment faced challenges when European businesses reduced spending in anticipation of a recession.
Magna International
Magna stock gained 2.6% in Tuesday’s trading session, resulting in a $22.6 billion market cap. The increase follows the company’s announcement of a new contract win for the production of specialized electric vehicle (EV) drive systems for a high-end vehicle developed by an unidentified North American car manufacturer.
Given Magna’s growing market share in the EV components sector, there is potential for the stock to rise in tandem with the expanding EV market in the future. With its expertise and investments in engineering and acquiring EV-enhancing technologies, Magna is considered one of the top Canadian EV stocks to buy and hold as global EV adoption continues.
Magna reported a 15% surge in third-quarter 2023 sales, totaling US$10.7 billion, outpacing the 4% growth in global light vehicle production. In addition, the company’s adjusted earnings increased by 33% year over year, and revenue for the first nine months of 2023 was 14% higher year over year, supported by higher productivity. The company’s legacy vehicle components businesses also remain resilient.
So why should investors consider buying Magna stock in February?
Firstly, Magna stock offers a quarterly dividend with a current yield of 3.3% and an expected growth rate of 2.5% for 2024. For income-oriented investors, TELUS surpasses Magna’s offering with a higher dividend yield of 6.2% and an expected growth rate of 7.3% for 2024.
Magna stock might be a better choice if you seek undervalued stocks with high growth potential. Its low forward price-to-earnings (P/E) ratio of 8.5, high five-year earnings growth outlook of 32.6%, and a forward price-earning-to-growth (PEG) ratio of 0.3 suggest shares are grossly undervalued given their earnings growth potential.
Furthermore, you could buy Magna stock if you believe in the future of electric vehicles and its position as the potentially largest EV stock on the Canadian stock market.
