If you’re a dividend investor looking to add high-quality stocks to your portfolio, Telus (TSX:T), the massive $30 billion telecom giant, has almost certainly crossed your radar.
Not only has Telus been one of the best long-term investments in recent years, growing both its operations and share price, but it has also consistently been one of the top dividend stocks you can own.
It increases its dividend regularly — and in fact, in recent years, it has boosted the payout multiple times throughout the year. On top of that, it currently offers a yield of over 8%.
So, with such a compelling dividend yield and Telus now trading just off its 52-week low, is it a buy in this environment, a hold, or a stock to avoid altogether?
Why is this telecom stock so cheap?
Before deciding whether Telus is worth investing in today, it’s important to understand why the stock is so cheap. It’s not every day you see such a large company in a traditionally reliable sector like telecommunications offering a yield north of 8%.
One of the biggest factors weighing on Telus right now is higher interest rates. With significant capital expenditures (capex) over the last few years to build out its 5G and fibre infrastructure, the rising cost of debt has squeezed margins and put pressure on its bottom line. At the same time, higher rates tend to push dividend yields up and stock prices down — a trend that has been playing out across the entire telecom sector.
In addition to macro pressures, the Canadian telecom space is facing more competitive and regulatory uncertainty. Price wars, efforts to lower consumer costs, and ongoing government scrutiny have all weighed on sentiment. Some investors are also concerned that if immigration were to slow down, which has been a key driver of growth for telecom stocks, it could impact Telus’s long-term outlook.
How strong are the headwinds?
Another reason for the drop in share price and the spike in its yield is Telus’s elevated payout ratio, which still sits above 100%. That’s raised some concerns about the sustainability of its dividend. However, now that most of its heavy capex is behind it, the payout ratio should start to gradually decline.
Lastly, Telus International, its digital customer experience and outsourcing subsidiary, has struggled recently. Weak revenue, profit warnings, and job cuts have weighed on investor sentiment and dragged down Telus’s stock.
So, while Telus is clearly facing several headwinds, none of them appear to be deal-breakers. And with the stock trading this cheap, it’s created a compelling opportunity for long-term investors who can handle a bit of short-term volatility. So, is it time to pull the trigger?
Should you buy or hold Telus in 2025?
Despite all the challenges Telus is facing, there are still a few good reasons why some analysts are bullish on the stock going forward.
For starters, the dividend is still expected to grow over the next few years. And when you combine that with the fact that it already yields over 8%, Telus could be one of the most attractive dividend stocks in Canada, especially when you compare it to other telecoms.
Even though the payout ratio is high right now, analysts expect it to come down as the company grows its revenue and doesn’t have to spend as much on capex going forward. The expensive shift from copper to fibre is basically done now, which should lower its spending and help it run more efficiently as it phases out its old infrastructure.
On top of that, its new fibre network should help it hold onto more customers and slowly increase what it earns per user, which should help support the dividend and improve the bottom line.
So, although there are definitely risks, and it’s not a stock that’s going to bounce back overnight, for long-term investors who are focused on reliable income and long-term capital gains potential, Telus still looks like a solid option.
