The Canadian financial index has been rising rapidly for the last several months, and one of the key drivers behind this growth is the banks. They have significant weight in the sector, and most of them have been rising at a powerful pace. TD Bank (TSX:TD) is the only exception. The bank stock actually fell last month due to its legal challenges.
Its fundamental strengths give us hope that the bank will bounce back and there might be minimal long-term damages from an investment perspective. It’s also attractive right now from a dividend perspective, thanks to its discount because the other giants in the banking sector currently offer shrunken yields. Still, another dividend giant might be a much better buy than TD Bank.
A telecom giant
Unlike the banking sector, where only a single bank is battling legal/regulatory trouble, the telecom sector as a whole is facing a problem. A regulatory directive and other organic variables caused the entire sector to suffer, including giants like Telus (TSX:T). The company is down 39% from its five-year peak, the second-highest discount among the three telecom giants in Canada.
This slump is, ironically, the main reason to consider this stock instead of TD Bank. It has pushed Telus’s yield up to 7.4%. This is more than 2% higher than TD Bank. Both are aristocrats, and there are currently no signs that might indicate the company’s decision to stop its dividend growth, let alone suspending or slashing the payouts.
Another reason is recovery. Telus and other telecom giants might experience a resurgence, and at its heavily discounted state, Telus might experience a higher level of growth, which would result in better gains for its investors.
Opportunities
One opportunity that not just Telus but all telecom giants in the country might benefit from is the Internet of Things (IoT). More IoT devices in the market would mean increased requirements for wireless services (5G and others). IoT devices might significantly increase the amount of bandwidth being consumed and hundreds of thousands (if not millions) of new connections.
However, Telus has a few other opportunities. It’s one of the leaders in the home security industry already, and it can expand this to include a wider range of smart home services and products. It’s also investing heavily in telehealth, which may see significant traction in the coming years.
These opportunities can help Telus grow organically and financially, making its dividends even more financially secure than they currently are and might result in significant stock growth.
Foolish takeaway
Telus is not in the top 5G stock in Canada, but it’s currently the most appealing dividend giant among the three telecom leaders in the country. The yield and 19 years of consecutive dividend growth are reasons enough to buy it over TD Bank, but if it also starts a recovery journey and gets into long-term bullish momentum, it would also be an excellent investment from a capital-appreciation perspective.
