Telus (TSX:T) is up 12% in 2025 after enduring an extended correction. 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 dividends and total returns.
Telus share price
Telus trades below $22 per share at the time of writing, compared to $34 three years ago. A series of negative events sent the stock into a long pullback that eventually saw it dip to $19 at the end of 2024.
Soaring interest rates in 2022 and 2023 caused the initial decline. The Bank of Canada raised interest rates aggressively to cool off an overheated economy as it battled to get inflation under control. Inflation topped 8% in June 2022. The central bank has a 2% target rate. Rate hikes immediately drove up expenses on variable-rate debt. The subsequent jump in bond yields also made it more expensive for companies to access new funds in the debt market. Telus uses a lot of debt to help finance its capital initiatives that include the upgrading and expansion of its wireless and wireline network infrastructure. The jump in debt expenses lowered profits and reduced the amount of cash available to bring down debt or distribute to shareholders.
Telus also struggled with falling revenue at its Telus Digital subsidiary. Price wars for mobile and internet subscribers in the core business segments added to the pressure.
The Bank of Canada started to cut rates in the second half of 2024. This will help ease the pressure on that front. Telus is taking Telus Digital private, and pricing across the sector on mobile plans is rising again as providers look to shore up margins. Reduced immigration and regulatory uncertainty remain headwinds for the industry, but the worst of the recent challenges should be in the rearview mirror.
Opportunity
Telus is investing in data centre operations to capitalize on the growth of artificial intelligence (AI) and the need for Canadian businesses to keep their data safely located in the country. Telus also has other subsidiaries that are growing at a steady pace. Telus Health saw revenue rise 12% in the first quarter (Q1) of 2025 compared to the same period last year. Telus Agriculture and Consumer Goods delivered revenue growth of 20%. These businesses have the potential to become meaningful contributors to long-term growth in the coming years.
Telus reported decent Q1 2025 results with consolidated free cash flow rising 22% over the same period last year. The board increased the dividend for 2025. Management intends to raise the distribution by 3% to 8% per year from 2026 to 2028.
Investors who buy Telus at the current level can pick up a 7.6% dividend yield.
Time to buy?
Near-term volatility is expected as markets watch inflation reports to determine if the Bank of Canada will continue to cut interest rates in the second half of this year. Any indication that inflation is rising again due to tariffs could put new pressure on telecom stocks.
That being said, income investors should be comfortable owning Telus at this level. You get paid a good dividend yield, and there is potential for decent upside in the stock over the medium term.
