Is TELUS Stock a Buy for its 7.35% Dividend Yield?

TELUS stock certainly looks attractive for its dividend yield, but is there anything else going for this telecom stock?

| More on:
dividends grow over time

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

TELUS (TSX:T) offers an attractive 7.35% dividend yield, which immediately catches the eye of income-focused investors. And while that looks mighty fine, there are other points to consider before going all in. So, let’s look at what might make TELUS stock worth your time.

Created with Highcharts 11.4.3TELUS PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The numbers

TELUS stock’s recent earnings report paints a positive picture, with net income for the third quarter of 2024 reaching $923 million. Earnings per share (EPS) saw an impressive 111% year-over-year growth, and free cash flow surged by 58%. These figures underscore the company’s ability to generate consistent returns and maintain robust operations, even in challenging market conditions.

Looking back, TELUS stock has demonstrated a reliable track record of growth. In the third quarter of 2023, it achieved a record-breaking addition of 406,000 telecom customers. This achievement highlights the company’s strong competitive position and its ability to attract and retain a growing customer base. Its strategic focus on expanding its services and improving customer satisfaction has clearly paid off over the years.

The future outlook for TELUS stock is equally promising. Analysts expect revenue to grow to $20.8 billion in 2025 and further to $21.8 billion by 2026. This anticipated growth is bolstered by the company’s strategic investments in technology and infrastructure. TELUS stock plans to invest $24 billion in Ontario and $17 billion in British Columbia over the next five years, focusing on enhancing its network and operations. Such commitments not only support its growth trajectory but also position the company to capitalize on future market opportunities.

Valuation

While the dividend yield is undeniably attractive, the sustainability of such payouts requires scrutiny. TELUS stock’s payout ratio is a hefty 242.92%, meaning it pays out significantly more in dividends than it earns in net income. Although the company has a history of dividend increases, this high payout ratio could be a cause for concern if earnings growth does not keep pace. For now, strong operating cash flow helps sustain these payouts, but it remains a factor to monitor closely.

Debt levels are another consideration. As of the most recent quarter, TELUS stock reported $29.05 billion in total debt, with a debt-to-equity ratio of 171.64%. While the company generates substantial cash flow, such high debt could limit financial flexibility. Investors need to weigh this against the company’s ability to service its obligations and continue funding growth initiatives.

In terms of valuation, TELUS stock’s trailing price-to-earnings (P/E) ratio stands at 34.76, with a forward P/E of 21.46. This suggests that the market anticipates earnings growth, which aligns with the company’s outlook. The price-to-book ratio of 2.07 indicates that the stock is trading at a premium relative to its book value, reflecting investor confidence in its future prospects.

Market strength

Compared to its industry peers, TELUS stock offers a higher dividend yield, making it particularly appealing to those seeking steady income. However, its elevated payout ratio relative to competitors may hint at greater risks if market conditions deteriorate. This is balanced by the company’s continued expansion and operational improvements, which enhance its overall appeal.

TELUS stock’s market position remains strong, with consistent additions in both mobile and fixed services. This reflects its ability to adapt and innovate in a competitive telecom landscape. Furthermore, the company’s focus on customer satisfaction and service quality helps it maintain a loyal customer base, which is crucial for sustaining long-term growth.

For income-focused investors, TELUS stock presents a compelling case. The dividend yield is generous, and the company’s growth plans and operational stability support its attractiveness. However, the high payout ratio and debt levels introduce some risks that cannot be overlooked. Ultimately, the decision to invest in TELUS stock depends on balancing the allure of its dividends with the potential challenges posed by its financial structure.

Should you invest $1,000 in Telus right now?

Before you buy stock in Telus, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Telus wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

The 1 Canadian Stock I’d Buy and Hold Forever in a TFSA

This Canadian stock is a strong option for any TFSA, and here's why.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,267 in Annual Passive Income

Dividend stocks are strong options, but these two could be some of the best long-term options.

Read more »

investor looks at volatility chart
Dividend Stocks

I’m Adding This 12% Dividend Stock for a Recession-Resistant Portfolio

Despite boasting such a high dividend yield, this 12% dividend yield stock might be an excellent pick to build your…

Read more »

Make a choice, path to success, sign
Dividend Stocks

1 Undervalued TSX Stock Down 51% to Buy and Hold

This TSX stock plunged, but don't count it out, especially at these prices.

Read more »

dividends can compound over time
Dividend Stocks

How I’d Invest $50,000 of TFSA Cash in 2025

If you have $50,000 to invest in a TFSA, here's how to get started.

Read more »

analyze data
Dividend Stocks

Why I’d Focus on Canadian Value Stocks for My Long-Term Portfolio

Canadian value stocks often provide income and growth that makes them great for long-term investing.

Read more »

woman looks at iPhone
Dividend Stocks

Investing $7,000 in Your TFSA? Consider These 2 Canadian ETFs for Retirement Planning

These two Canadian ETFs can be excellent long-term investments to add to your TFSA if you have contribution room available.

Read more »

ways to boost income
Dividend Stocks

Where I’d Invest $5,000 in Canadian Value Stocks During This Market Pullback

For patient, long-term investors, here are three discounted TSX stocks to have on your watch list right now.

Read more »