Spring Sale
This year could see a reshuffle in the TSX trend going on since 2022. The high-leverage companies and those dealing in discretionary products went through a downturn as rising interest rates and higher prices made the business environment unconducive. However, 2025 could see a shake-up as falling interest rates give the chief financial officers stability around planning debt management strategies. This reversal in trend has created an opportunity to buy a dividend stock at the dip and grab a 7.9% yield before the yield reduces.
A 7.9% dividend yield to grab before it reduces
Telus (TSX:T) is a good dividend option to stock up, given its third-quarter dividend-payout ratio of 77%. The stock has had a rough two years servicing its $28 billion debt as interest rates kept rising. The management is restructuring the company and looking to cut costs.
Telus stock is trading below its pandemic low and could see a reversal in its trend as interest rates fall and costs reduce. The stock price has surged by 3.3% year-to-date, reducing the dividend yield from 8.1% to 7.9%. The company has also increased its dividend per share for January by 3.5% and more dividend growth could come in July. It is a stock you might want to buy now before it grows further and lock in a 7.9% yield before this yield falls.
Why now is a good time to buy this dividend stock?
Let’s understand the nature of Telus stock. As a telecom company, it upgrades its technology to 3G, 4G, and now 5G, and each upgrade brings opportunities bigger than the previous. It earns money through subscriptions, which it uses for capital expenditure and debt servicing. Around 60-70% of the free cash flow left after these spends is used for distributing dividends. Hence, you won’t see much appreciation in the stock price.
In the last 25 years, Telus stock saw three instances of sharp dip:
- The first dip came during the 2000 dot.com bubble when the stock fell by 69% over two years.
- The second was during the 2008 financial crisis, when the stock fell by 50% over two years.
- And now the stock has fallen 40% in the last 33 months.
Such sharp corrections only happen in a macro-level crisis. Telus has proved its mettle in the last two crises as the stock rallied 500% and 150%, respectively, for the next five years after the major dip. And throughout the recovery cycle, the company grew its dividend by double-digit.
$10,000 invested in Telus DRIP in the 2009 dip is worth
Doing a back-testing, if you had invested $10,000 during the 2009 dip when Telus stock was trading around $8.53, you could have bought 1,172 shares that would now be paying $1,792 in annual dividends and are worth $23,768.
| Year | Dividend | Telus Stock Price | New DRIP shares | Total Telus Shares | Dividend amount |
| 2024 | $1.53 | $23.58 | 120.91 | 2115.51 | $3,235.58 |
| 2023 | $1.43 | $26.13 | 96.74 | 1994.60 | $2,851.07 |
| 2022 | $1.33 | $29.79 | 76.71 | 1897.85 | $2,527.94 |
| 2021 | $1.25 | $25.21 | 80.44 | 1821.14 | $2,285.17 |
| 2020 | $1.17 | $25.14 | 73.45 | 1740.70 | $2,027.92 |
| 2019 | $1.11 | $22.63 | 72.58 | 1667.25 | $1,846.48 |
| 2018 | $1.03 | $23.81 | 62.58 | 1594.67 | $1,642.51 |
| 2017 | $0.97 | $21.38 | 61.89 | 1532.09 | $1,489.96 |
| 2016 | $0.90 | $19.13 | 60.43 | 1470.21 | $1,323.18 |
| 2015 | $0.82 | $20.94 | 48.12 | 1409.78 | $1,156.02 |
| 2014 | $0.74 | $18.28 | 47.45 | 1361.66 | $1,007.63 |
| 2013 | $0.66 | $16.27 | 46.37 | 1314.21 | $867.38 |
| 2012 | $0.60 | $14.41 | 45.59 | 1267.84 | $754.37 |
| 2011 | $0.54 | $11.37 | 50.25 | 1222.25 | $656.96 |
| 2010 | $0.49 | $8.53 | 1172.00 | $571.35 |
This amount would have compounded to $3,235 in annual dividends with Telus’s dividend-reinvestment plan (DRIP). The reinvestment would have added roughly 943 DRIP shares over the years. The 2,115 shares would be worth $42,892 at the current share price of $20.28.
Investor takeaway
Telus management has a proven track record of withstanding crises and giving good returns to shareholders. A one-time investment in this stock at its multi-year dip can boost your retirement portfolio. If you haven’t yet made your Registered Retirement Savings Plan contributions, you could consider investing $10,000 by the end of February in Telus and reduce your 2024 tax bill.
