TELUS Stock: Buy, Sell, or Hold?

TELUS (TSX:T) stock has seen operational improvements but still remains down on a year-over-year basis. So, is it worth it?

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Shares of TELUS (TSX:T) remained stable this week, even after reporting earnings that saw profit drop on an annual basis. It’s just the latest for not just TELUS stock but the telecommunication sector in general.

So, what should investors consider when it comes to TELUS stock? Is the outlook so terrible they should sell? Or is the share price a deal on the TSX today?

Buy

For investors considering buying TELUS stock, there are certainly many factors to consider. For instance, TELUS stock has consistently demonstrated robust customer growth across its mobile and fixed services, setting quarterly and yearly records. This indicates the company’s ability to attract and retain customers, which is crucial for long-term revenue growth and profitability. 

Despite fluctuations in net income due to various factors such as restructuring costs and depreciation, TELUS has shown overall growth in operating revenue, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and free cash flow. This suggests the company’s ability to generate strong cash flows and maintain financial stability.

What’s more, TELUS stock provided clear financial targets for the future, including revenue and EBITDA growth projections. The company’s stable outlook and commitment to its dividend-growth program provide investors with confidence in its long-term prospects.

Hold

Still, there are also reasons why investors may want to wait before buying more or, indeed, selling. In this instance, its dividend growth is a large factor. TELUS stock has a history of increasing its dividend payout, which is attractive to income-oriented investors. The company’s commitment to its dividend-growth program, supported by its strong financial performance and free cash flow expansion, makes it an appealing choice for investors seeking reliable dividend income. This is currently at a yield of 6.68%.

Furthermore, TELUS demonstrates financial discipline through its cost-saving initiatives and efficiency programs, resulting in margin expansion and strong free cash flow growth. This disciplined approach to financial management contributes to the company’s overall stability and resilience in various market conditions.

Finally, there could be more growth coming in the future. TELUS stock continues to invest in technology, such as its PureFibre network, to enhance its service offerings and improve customer experience. Holding Telus stock allows investors to participate in the company’s technological advancements and innovation initiatives, which could drive future growth and profitability.

Sell

That being said, investors have every right to be a bit fearful of the future. Despite strong revenue and EBITDA growth, TELUS stock has experienced a significant decline in net income over the reported quarters. In the third quarter of 2023, net income was lower by 75%, and in the fourth quarter of 2023, net income decreased by 50% compared to the previous year. While there was an increase in net income in the first quarter of 2024, the trend of declining net income in previous quarters could raise concerns among investors about the company’s profitability. 

Telus attributed the decline in net income to higher efficiency-related restructuring costs, depreciation, amortization, and financing costs. And despite strong operational performance, net income has fallen on an annual basis.

Finally, while TELUS stock increased its quarterly dividend over the last few quarters, the rate of dividend growth has slowed down compared to previous years. This could be interpreted as a signal that the company’s management is becoming less confident in its ability to sustain higher dividend payouts, which might disappoint income-oriented investors.

Bottom line

Investors will need to consider their own risk tolerance before considering TELUS stock further. The company continues to hold a strong market position and improve operational performance. However, even a 6.68% dividend yield may not be enough to keep investors around—not until they see more improvements in future guidance.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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