Is Telus Stock a Buy Today for its 8% Dividend Yield?

Telus is down 17% in 2024. Is the stock now oversold?

| More on:
dividend growth for passive income

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) is down 17% in 2024 compared to a big gain in the TSX. Contrarian investors seeking high dividend yields are wondering if Telus stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on income and total returns.

Telus share price

Telus trades below $20 per share at the time of writing compared to around $24 at the beginning of the year. The stock was as high as $34 at one point in 2022.

Created with Highcharts 11.4.3TELUS PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

The initial pullback in the back half of 2022 and through most of 2023 was largely due to rising interest rates. High inflation forced the Bank of Canada to raise interest rates aggressively. This drove up borrowing costs for households and businesses.

In the case of Telus, the company uses debt to fund part of its capital programs that include expansion of the 5G mobile network and installation of fibre optic lines to the premises of its customers. Elevated borrowing costs can drive up debt expenses. This reduces profits and cuts into cash that can be used to pay dividends or reduce debt.

The Bank of Canada signalled it was done raising interest rates late last year and began to reduce rates in the summer of 2024. This led to a rebound in many utility sector stocks, but Telus and its communications industry peers have not joined the party.

The reason lies in the specific challenges for the telecom industry. Price wars for mobile and internet subscribers have put pressure on margins. Regulatory uncertainty still hangs over the group. In addition, Telus had to reduce its guidance due to weaker revenue at its Telus Digital subsidiary, which provides a multilingual call centre and IT services to global clients.

Opportunity

Telus reported decent third-quarter (Q3) 2024 results. Net customer additions in the quarter came in at 130,000 for the mobile group and 34,000 for internet subscribers. Mobile postpaid churn remained below 1%. Consolidated operating revenue increased by 1.8% compared to Q3 2023.

Telus Digital’s results appear to be stabilizing when compared to Q2 2024. The company is investing in artificial intelligence (AI) solutions that should help drive a rebound for the division. At the same time, the parent company can take advantage of AI solutions to drive improved efficiency, reduce costs, and provide better and customized client services.

Telus Health, another subsidiary, continues to grow. Revenue increased 4% compared to the same period last year. A third subsidiary, Telus Agriculture and Consumer Goods, saw revenue increase by 20%. The newer businesses have the potential to become significant contributors to growth in the coming years to diversify the overall revenue stream.

Dividends

Telus recently announced another dividend increase, representing a 7% year-over-year hike in the size of the distribution. This is the 27th time the board has increased the payout since 2011. Going back 20 years, Telus has paid out $21 billion in dividends, or roughly $18 per share.

Investors who buy Telus stock at the current level can pick up a dividend yield of 8.1%.

The bottom line on Telus stock

Telus trades close to its 12-month low. Near-term volatility should be expected until there is evidence that the price wars in the industry have run their course and that the various players start to refocus on margins. That being said, the dividend should be safe, so you get paid well to ride out the turbulence.

If you have some money to put to work in a contrarian portfolio focused on dividend income, this stock deserves to be on your radar.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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.

The Motley Fool recommends TELUS and Telus Digital. The Motley Fool has a disclosure policy.  Fool contributor Andrew Walker has no position in any stock mentioned.

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

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »