Telus (TSX:T) stock has been on an uptrend since the beginning of 2025, rising 7.34% year to date. After falling 15.56% in 2024 and 9.76% in 2023. What happened this year that turned the tables? Is this rally short-lived or the beginning of a strong year of recovery? Let’s find out.
Source: Getty Images
Behind the fall in Telus’s stock price in 2024
The Canadian telecom sector has been undergoing a major reshuffle on all fronts: regulatory, competition, and market share. The unique selling point of the three telecom giants had an oligopoly in their incumbent areas where they have rolled out fibre networks. However, this vanished with the wholesale fibre mandate in May 2024.
The mandate required Telus to share its network with big and small competitors to allow them to provide internet services using Telus’s network in return for a fee. This mandate hurt Telus’s original business model of building a fibre network to acquire customers. However, the telco turned the tables in its favour. It started offering affordable internet bundled with mobility, entertainment, home automation, security, and health services on rival networks. Small internet companies now have to compete with Telus on a different front.
New connections were one of the reasons for Telus’s 52% year-over-year growth in operating income in the third quarter of 2024. However, the billions of dollars Telus had raised in debt capital to build network infrastructure was still hurting the profit margins as the Bank of Canada had kept interest rates at 5% till May 2024.
Behind the rise in Telus’s stock price in 2025
Things are changing in 2025 as the Bank of Canada has reversed its monetary policy. It has steeply cut the interest rate to 3% in eight months. Analysts expect the central bank to cut interest rates further in 2025 to sustain the economic impact of a looming trade war.
For interest rate cuts to seep into the balance sheet and have an impact on a company’s net profit takes time. A 3% and lower interest rate could give Telus ample room to restructure its debt. A 25 basis point decrease in interest rate can increase Telus’s net income by $4 million. The Bank of Canada has reduced the rate by 200 basis points, which equates to a $32 million increase in net profit.
A lower interest expense and rising profits could put Telus’s dividend-payout ratio back to its targeted range of 65-70% from 77% in the year ended September 2024.
Is Telus stock a buy, hold, or sell in 2025?
Looking at the way things are panning out, Telus’s fundamentals are improving. It has a strong history of growing its dividend per share every six months by 3.5%. The stock is unaffected by the trade war and geopolitical uncertainty. Even in an economic downturn, Telus will continue to earn revenue from subscriptions as communication services are a defensive sector.
All factors make Telus stock a buy in 2025 to enjoy the recovery rally from its four-year low. If you own the stock, you can keep holding it to enjoy a rising dividend per share. You could also consider buying more stock while it still trades near $21 and lock in a 7.6% annual yield.
