Telus (TSX:T) is up about 10% in recent weeks. Investors who missed the bounce are wondering if Telus stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on high-yield dividend stocks.
Telus stock price
Telus trades near $21.50 per share at the time of writing. This is up from the 12-month low of around $19 but is still way off the $34 the stock reached in 2022.
Soaring interest rates in 2022 and 2023 hit the stock hard as investors dumped communications and utility companies that use significant debt to fund their capital projects. Last year, the decline was more connected to price wars in the Canadian communications sector and revenue challenges at Telus Digital, a subsidiary.
Lower interest rates should ease pressure on debt expenses in 2025 and 2026. The worst of the price cutting in the mobile and internet markets could also now be in the rearview mirror.
Earnings
Telus just reported decent fourth-quarter (Q4) 2024 results. This is why the stock is getting a nice pop on the earnings news. Operating revenue rose by 3.4% in the quarter compared to the same time last year. Adjusted net income rose 11.4%, and adjusted basic earnings per share increased 4.2%. Total telecom subscriber connections jumped 5.9%.
Looking ahead, Telus said it expects its Telus technology solutions (Ttech) business, which includes the core internet and mobile divisions, along with the health services and agriculture and consumer goods services, to deliver 2% to 4% growth in operating revenue in 2025. Ttech adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) could increase by 3% to 5% this year. Consolidated free cash flow is targeted at roughly $2.15 billion for 2025.
Based on this outlook, Telus appears to be navigating the challenging market conditions relatively well.
Dividends
Telus has a good track record of dividend growth and share buybacks, returning more than $27 billion to shareholders since 2004, including $22 billion in dividend payments. The dividend increased by 7% over the past 12 months. At the time of writing, the stock provides a dividend yield of 7.5%.
Risks
Immigration cuts will reduce the number of students and other newcomers who need mobile phones and internet connections. This is going to have an impact on subscription growth for Canadian communications companies.
A trade war that pushes the economy into a recession could also slow the pace of people upgrading to new phones or adding larger data packages. At the same time, there is ongoing regulatory uncertainty. Canada will have an election in 2025. The next government could decide to force more competition in the communications sector or even open it up to American firms as part of the trade negotiations.
Should you buy Telus now?
Near-term volatility is expected, and a dip back to the 12-month low wouldn’t be a surprise on a broader market pullback. That being said, income investors should be comfortable owning Telus at this level. The dividend should be safe, and much of the negative news is probably already reflected in the share price.
