Telus (TSX:T) and BCE (TSX:BCE) are two of Canada’s most popular telco stocks. One boasts a 7% yield and high dividend growth, while the other has a sky-high 8.9% yield today. Between the two of them, there is a lot of dividend potential here. But which is the better buy?
The case for Telus
A case for buying Telus over BCE can be built on the company’s growth rates. It generally has better growth metrics than BCE does, as the table below shows:
| Metric | Telus | BCE |
| 5-year compounded free cash flow growth | 15.4% | 1.2% |
| 5-year compounded revenue growth | 7% | 0.9% |
| 5-year compounded total asset growth | 10.7% | 3.9% |
| 5-year compounded operating income growth | 0.3% | 0.29% |
As you can see, Telus has far better growth rates than BCE going by all of the metrics above. It is a faster growing company. Unfortunately, Telus’ win on growth is offset by worse performance on profitability, as I will explore in the next section.
The case for BCE
A case for buying BCE instead of Telus can be built on the fact that BCE is more profitable. As the table below shows, BCE has much higher margins and returns on equity than Telus does.
| Telus | BCE | |
| Gross margin | 35% | 44% |
| Operating margin | 15% | 22% |
| Free cash flow margin | 3.8% | 8% |
| Return on equity (ROE) | 4.6% | 10.2% |
As you can see, Telus has much higher margins than BCE does, across the board. This leaves us with basically a draw between T and BCE so far. In the next section, I’ll evaluate the two stocks’ dividend sustainability, hopefully breaking the tie with that information.
Dividend potential
Both Telus and BCE have very high dividend yields, 7% and 9%, respectively. Both dividends are well above what most investors seek, so I will evaluate the two companies’ dividends primarily in terms of safety.
Telus has a pretty mixed showing on dividend safety. Its earnings-based payout ratio is a sky-high 154%, but its operating cash flows are more than double its dividend payouts (the cash dividend payout ratio is 45%). The free cash flow payout ratio was also comfortably below 100% in 2023’s third and fourth quarters, although it was above 100% in the most recent quarter.
BCE generally scores similarly to Telus on dividend safety. Its earnings-based payout ratio is 126%, which is lower than Telus’ ratio. Its operating cash flow payout ratio is the same as Telus’, while its free cash flow-based payout ratio is higher. Unfortunately, it looks like the dividend safety category is another draw.
The final verdict
Looking at growth, profitability and dividends, I was not able to identify a clear winner between Telus and BCE. It’s for this reason that I think I should mention my personal choice for best Canadian telco: Rogers Communications (TSX:RCI.B). Rogers Communications has much better free cash flow growth than Telus and BCE, a lower payout ratio than both, and better earnings growth than BCE (its growth rates are similar to those of Telus). It’s also cheaper than both T and BCE, with a mere 12 price-to-earnings (P/E) ratio and a 4.8 price-to-cash flow (P/CF) ratio. On the whole, it is my personal favourite Canadian telco stock.
