TFSA Passive Income: Is Telus Stock a Buy, Sell, or Hold?

Telus (TSX:T) stock is a great long-term income play for dividend investors this March.

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

TFSA (Tax-Free Savings Account) investors hungry for passive income plays shouldn’t hesitate to explore some of the higher-yielding dividend plays that have opened up in recent years. Undoubtedly, it’s never a good idea to chase yield mindlessly.

Often, dividend yields significantly higher than that of historical averages result from a firm that may have lost its way. As a value investor, it’s your job to ask yourself if what’s weighing down the stock under question are temporary headwinds that can be overcome with time. If not, a high-yield play that appears to be rich with deep value may actually be a value trap. Undoubtedly, it’s the long-term fundamentals that matter most. Short-lived macro headwinds and quarterly fumbles are fine as long as the firm’s long-term edge is still in play.

In this piece, we’ll look at one long-time dividend hero in Telus (TSX:T) stock. Though the telecom scene is popular for its historically elevated dividend yields and somewhat decent amount of capital appreciation over the long run, the high-rate environment has really taken a toll on Canada’s top industry players (the Big Three, as they’re often referred to in the media).

Though Telus has been doing relatively decently in recent quarters, at least comparatively, the stock remains down in the ditches, with a yield that’s quite appealing at 6.33%. Of course, yields well north of 7% aren’t uncommon in the telecom scene, at least not these days.

Higher yields are out there, so why settle for Telus as a TFSA passive-income pick?

After sinking below $50 per share, fellow telecom rival BCE sports a yield north of 8%. Additionally, if you’re okay with venturing south of the border, Verizon boasts an impressive dividend yield of around 6.8%, with some newfound momentum behind it (VZ shares up over 20% since its 2023 lows).

Given the higher yields in alternative telecoms today, why bother with Telus stock? It has a relatively small yield compared to some of its harder-hit peers. And with shares up just 8% or so from their 2023 lows, there isn’t as much momentum behind the telecom titan as recent negative momentum threatens to drag shares back toward 52-week lows of around $21.50 per share.

Of course, Telus stock carries its own set of risks. And at 23.3 times forward price to earnings (P/E), the stock isn’t exactly a deep-value bargain.

So, what makes the name an intriguing candidate for a TFSA fund?

I think Telus could grow its dividend at a quicker rate than the industry average over the next five years. The company can outpace its peers as newcomers to Canada look for affordable (but speedy) wireless internet plans. Looking ahead, I’d be unsurprised if Telus can hike its dividend by the high single-digits through what remains of these heavy industry headwinds.

All considered, Telus is a fine balance between long-term dividend growth and upfront yield. Though pressures could persist through the year, I must say I’m more confident in the firm’s abilities to navigate the current climate. Telus stock’s a buy, at least in my books.

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.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

More on Investing

A worker gives a business presentation.
Dividend Stocks

TSX Communications in April 2024: The Best Stocks to Buy Right Now

Here are two of the best TSX communication stocks you can buy in April 2024 and hold for years to…

Read more »

Man holding magnifying glass over a document
Tech Stocks

Watching This 1 Key Metric Could Help You Beat the Stock Market

One key metric that Buffett looks at is the return on equity. Here's why you should watch it.

Read more »

Man considering whether to sell or buy
Dividend Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold?

Royal Bank of Canada (TSX:RY) has a high dividend yield. Should you buy it?

Read more »

oil tank at night
Energy Stocks

Is Suncor a Buy, Sell, or Hold?

Suncor Energy stock is off to a strong start in 2024. Is the TSX energy stock a good buy right…

Read more »

Daffodils in bloom
Tech Stocks

2 Best “Magnificent Seven” Stocks to Buy in April

Two surging mega-cap tech stocks are the best buys among the “Magnificent Seven” this April.

Read more »

A golden egg in a nest
Stocks for Beginners

Got $5,000? 5 Stocks to Buy for Lasting Wealth

Got $5,000 to build a long-term compounding stock portfolio? Here are five top Canadian stocks to building lasting lifetime wealth.

Read more »

Businessman looking at a red arrow crashing through the floor
Dividend Stocks

BCE’s Stock Price Has Fallen to its 10-Year Low of $44: How Low Can it Go?

BCE stock price has dipped 39% in two years and shows no signs of growth in the next few months.…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Invest $10,000 in This Dividend Stock for $3,974.80 in Passive Income

This dividend stock gives you far more passive income than just from dividends alone, so consider it if you want…

Read more »