Telus (TSX:T) is one of the highest-yielding, large-cap stocks on the TSX. Boasting a 6.5% yield, it can pay you $6,500 per year if you invest $100,000 in it. Additionally, the company has raised its dividend at a compounded annual (CAGR) rate of 7.1% over the last three years.
Telus currently pays a $0.3761 quarterly dividend, which works out to $1.50 on an annualized basis. At today’s stock price of $23.08, that dividend is enough to generate a lot of passive income.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Telus | $23.08 | 1,000 | $0.3761 per quarter | $1,500 | Quarterly |
However, there’s a small problem: Telus hasn’t been doing very well as a stock or as a business. Over the last five years, its revenue has barely grown, and its earnings have declined at a 5.36% CAGR rate. That on its own is not a good thing; however, there is some evidence that the company may be starting to turn its fortunes around. In this article, I will explore Telus’s latest earnings release and attempt to determine whether the stock is a buy at today’s prices.
Telus’s earnings
Telus’s most recent earnings release was pretty strong, beating analyst estimates and delivering the following metrics:
- $5.15 billion in revenue, up 2.6%
- $310 million in net income, up 17%
- $0.20 in earnings per share, up 17.6%
- $1.3 billion in cash from operations, up 16.7%
- $590 million in free cash flow, up 82%
It was a pretty impressive showing. Thanks to the company’s efforts at signing up new customers and users, it was able to deliver modest revenue growth in the fourth quarter. It grew its earnings and cash flows even more than it grew its revenue because these metrics were poor in the base period (i.e., the year-ago quarter).
Competitive position
It’s one thing to note that Telus put a good quarter behind it, but quite another thing to say that such quarters will continue. In order to ascertain whether that will happen, we need to know what Telus has coming up.
We can start to answer that question by looking at the company’s competitive position. Telus is a Canadian telecommunications company, one of the “Big Three” telco providers in the country. These three companies provide cellular, internet and TV service to customers nationwide. U.S. firms and other foreign operations are not allowed to enter the Canadian telco industry. For this reason, Telus and its two main competitors operate something like an Oligopoly, sharing the market between them.
Telus’s strong competitive position argues that its earnings are likely to grow over the long term. The company has a locked-in customer base that is likely to keep using it as their contracts come up for renewal. Additionally, said contracts are usually fairly long, lasting at least two years; if a customer wants to get out early, they will have to pay a cancellation fee.
Do these factors make Telus a buy? In my opinion, it is a moderately good buy. It isn’t the fastest-growing company in the world, but it has gotten so cheap that it works as a high-yield play. Overall, I would be comfortable holding T stock.
