Invest $15K in This Dividend Stock for $1,038.96 in Passive Income

Sure, TELUS (TSX:T) has been going through a lot on the TSX lately, but even just the dividend could make the investment worth it.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 4, 2024 9:15 pm EDT

Canadians looking to balance the allure of high dividends with the potential for future returns can take a savvy, diversified approach to their investments. While it’s tempting to chase after the highest yields, it’s crucial to ensure these dividends are sustainable and not at the expense of long-term growth.

By mixing high-dividend stocks with a few growth-oriented investments, Canadians can enjoy steady income now while also positioning themselves for capital appreciation down the road. This way, they get the best of both worlds: regular cash flow to enjoy today and the potential for wealth-building tomorrow — all without putting all their eggs in one basket.

Pile of Canadian dollar bills in various denominations — Source: Getty Images

TELUS

TELUS (TSX:T), one of Canada’s leading telecommunications giants, is a staple on the TSX and has long been a favourite among income-focused investors. Known for its reliable wireless, internet, and TV services, TELUS has built a reputation for stability and consistent growth. What makes TELUS particularly appealing is its strong dividend — one it has not only maintained but regularly increased over the years. This makes it an attractive option for those who appreciate a steady income. With a solid market presence and a growing customer base, TELUS continues to demonstrate its ability to generate robust cash flow, supporting both its dividend payments and future investments.

But TELUS isn’t just about paying out dividends. The company is also forward-thinking, investing heavily in technology and innovation. From expanding its 5G network to venturing into health technology through TELUS Health, the company is positioning itself for future growth in areas beyond traditional telecom services. This dual focus on current income and future growth opportunities makes TELUS a compelling choice, especially for investors who want a blend of stability and the potential for long-term capital appreciation. Plus, being a well-established player in a critical industry adds a layer of security, making TELUS a dependable stock to hold in a Canadian portfolio.

Into earnings

TELUS’s recent earnings report paints a mixed picture, combining strong operational achievements with some cautionary notes. The company reported solid growth with 332,000 total customer net additions in the second quarter, a 13% increase year over year. Plus, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 5.6%, reaching approximately $1.8 billion. Additionally, TELUS saw a significant 71% boost in free cash flow to $478 million, reflecting higher EBITDA and lower capital expenditures. These figures underscore TELUS’s ability to drive profitability and efficiency even in a competitive environment.

However, investors should note that TELUS has adjusted its full-year outlook, trending toward the lower end of its original growth targets for tech operating revenues and adjusted EBITDA. The company cited ongoing competitive pressures in the mobility and fixed service markets as factors that could temper revenue growth. Despite these challenges, TELUS remains focused on cost efficiency and sustaining its strong dividend program. This signals confidence in its long-term strategy and commitment to shareholder returns.

Still valuable

TELUS presents a compelling option for investors, especially those with an eye on consistent dividend income. With a forward annual dividend yield of 7%, TELUS offers an attractive return in a low-interest-rate environment. The company’s long-standing commitment to returning value to shareholders through dividends, despite challenges in the competitive telecom sector, reinforces its reliability as a dividend payer. Plus, TELUS has a history of incremental dividend increases, signalling confidence in its ability to generate sustainable cash flow.

However, it’s important to consider TELUS’s current valuation and financial metrics. The stock is trading with a forward price-to-earnings ratio of 22.42. This suggests that while the stock isn’t overly expensive, it’s priced for moderate growth. The company’s significant debt load, with a total debt-to-equity ratio of 171.58%, also warrants attention, as it could impact future profitability and flexibility. So, how much would investors receive to wait for a rebound? Let’s look at the dividend from a $15,000 investment.