Are you a dividend seeker? In the last 18 months, the dividend environment has been volatile as Canada faces the highest interest rates in over a decade. Many small and mid-sized companies slashed their dividends to keep up with the rising interest expense. Several dividend aristocrats also slowed their dividend growth: BCE slowed its growth rate in 2024, while Enbridge and Canadian Utilities slowed it in 2020. Amid this uncertainty, one dividend stock announced a monster dividend raise of 7.1%.
A TSX stock announces monster dividend raise in 2024
Telecom giant Telus Corporation (TSX:T) increased its quarterly dividend per share to $0.3761 and paid it on January 2. The next dividend is payable on April 1. It is 7.1% higher than the $0.3511 quarterly dividend per share paid a year ago. And the best part is the company raises its dividend twice a year. If it does increase its quarterly dividend in June, it could be $0.3890, representing a 7% increase from the year ago quarter.
Before we move further, note that Telus has two stocks trading on the TSX. The one that pays dividends is Telus Corporation, which was trading above $23 at the time of the writing of this article. The other one is Telus International, a growth stock that does not pay dividends.
Coming back to Telus Corporation’s dividend raise. The management has committed to raise its dividend by 7 to 10% between 2023 and 2025. Although the management can change this decision depending on the business conditions, it has maintained its growth so far. Also, note that 7% growth is in the lower range. If the interest rate environment were conducive, it could have even increased the dividend by 10%.
Can this stock sustain its dividend raise throughout 2024?
While the dividend raise looks attractive, it also raises concerns about whether this generous dividend will hurt the company’s ability to sustain the dividend payouts. You can measure this with the company’s dividend payout ratio, the percentage of free cash flow (FCF) left after debt installments and capital spending to pay dividends.
Telus management has set a target payout ratio of 60 to 75% of FCF. However, high-interest expenses and capital spending reduced the company’s FCF and increased the payout ratio to 77% in 2023. The ratio is slightly above its target, and it is confident it will reduce this ratio as capital spending falls.
While management has not given any hint of reducing dividend growth, let us not rule out the possibility. If the management pauses further dividend growth, its 2024 dividend per share would grow by 5.2% to $1.50 from $1.429 in 2023. And if it continues with its mid-year dividend growth, the 2024 dividend growth would be 7%.
Telus has maintained liquidity of $3.1 billion, above its minimum liquidity requirement of $1 billion, hinting that it has sufficient funds to withstand high-interest rates. T stock can continue to pay its dividends, as it has sufficient cash flow and revenue growth. The company will keep extending its debt by issuing new debentures and using the proceeds to repay the maturing debentures.
Investing in this stock
Now is a ripe time to invest in this telco as the stock is trading closer to its 52-week low, and the dividend growth has inflated its yield to 6.49%. Telus has been growing dividends since 2011. Like all other dividend aristocrats, Telus will also slow its growth rate in the future. By investing early in its growth, you can enjoy the high growth and compound your returns with a dividend reinvestment plan (DRIP).
Consider investing small amounts at regular intervals in Telus to build a sizeable passive income for your retirement.
