Canada’s primary stock exchange currently enjoys a 14% year to date, possibly due to three interest rate cuts already. Only the communications services sector (-3.47%) is losing thus far in 2024, while 10 others have positive returns. The Bank of Canada’s benchmark is 4.25%, and it seems more or bigger rate cuts are coming.
Falling interest rates are tailwinds for the TSX, especially for underperforming, if not undervalued, stocks. TELUS (TSX: T) and Laurentian Bank of Canada (TSX: LB) should be on investors’ watchlists. Both stocks are barely above water or near lows, but a turnaround could be on the horizon in the last quarter of the year 2024.
Multi-year dividend growth
TELUS is a good option if you’re buying on weakness. The 5G stock belongs to the worst-performing sector and trades at $22.52, or just 11% off its 52-week low. However, Canada’s second-largest telco isn’t a mediocre asset you can ignore. Dividend investors love TELUS for its 20-year annual dividend-growth streak. If you invest today, the dividend yield is 6.91%.
The $33.4 billion telco giant is highly profitable, although net income dipped in 2023 compared to 2022. Nonetheless, its Mobility and Fixed services continue to experience robust customer growth. In the second quarter (Q2) of 2024, net income rose 12.8% to $221 million compared to Q2 2023.
Its president and chief executive officer (CEO), Darren Entwistle, said, “Our results demonstrate how we are delivering sustainable, profitable growth, underpinned by our consistent strategic focus on margin-accretive customer expansion, globally leading broadband networks and customer-centric culture.”
Doug French, executive vice-president and chief financial officer of TELUS, added, “Despite facing a challenging competitive and macroeconomic environment, we are executing against our strategic objectives, including our significant cost efficiency programs. As we enter the back half of the year, our financial position remains strong.”
Other financial highlights during the quarter were the 24% and 71% year-over-year increases in cash provided from operating activities and free cash flow (FCF) to $1.4 billion and $478 million, respectively. The consolidated capital expenditures declined by 14% to $691 million from a year ago.
According to management, the recent 7% dividend hike is consistent with TELUS’s multi-year dividend-growth program. Market analysts forecast the current share price to rise by $2 (8.2%) in one year.
Strengthening the foundation
Laurentian Bank unveiled a strategic plan in May this year and announced organizational changes on September 9, 2024. The $1.2 billion bank completed a strategic review in 2022 but found no buyer. Thus, management decided to instead focus on efficiency and simplification instead.
In Q3 fiscal 2024, net income declined 31% to $34.1 million versus Q3 fiscal 2023. Nonetheless, its President and CEO, Éric Provost, said, “Our focus remains on leveraging our specializations and investing in technology to strengthen our foundation.”
While Laurentian Bank builds a more agile organization, the 6.92% dividend yield compensates for the underperformance. The current share price is $27.18 (+2.68% year to date).
Buffer on price pressure
TELUS and Laurentian Bank appear undervalued but could rise soon or in the next bull market. Fortunately, the dividend yields serve as buffers against the current stock price pressures.
