Telus (TSX:T) is up 15% in 2025. 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 dividend income and total returns.
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Telus share price
Telus trades near $22.50 at the time of writing. The stock was as low as $19 near the end of 2024, after sliding steadily from $34 in 2022.
Telus uses debt to fund part of its capital program, which runs into the billions of dollars every year. The sharp rise in interest rates that occurred in 2022 and 2023 drove up debt expenses on variable-rate loans and made it more expensive to borrow new funds. This is a big reason why the stock fell during that time. Investors dumped telecoms, pipelines, and utilities as rates rose, all for the same reason.
The Bank of Canada ended its rate hikes in late 2023 and started to cut rates in the second half of 2024 after inflation fell to a reasonable level. Rate-sensitive stocks broadly rallied in the back half of last year, but Telus didn’t join the party. Telecom companies spent most of 2024 engaged in a price war on mobile and internet plans. This hurt margins. In addition, Telus took a hit due to revenue declines at its Telus Digital (formerly Telus International) subsidiary. Regulatory uncertainty also served as a headwind for Telus and its peers.
Upside?
Tax-loss selling likely drove the share price too low at the end of 2024. Bargain hunters sensed a deal and started to buy Telus in 2025, but the path has been choppy, with a big pullback in March that saw the stock drop from $23 back to below $20. Since then, the trend has generally been higher, aside from the dip in early April due to the tariff rout in the markets.
Telus reported decent Q1 2025 results and provided solid guidance for the year. Consolidated operating revenue rose 3% compared to Q1 2024, while cash from operations increased 13% and consolidated free cash flow jumped 22%. Telus said it intends to raise the dividend by 3% to 8% annually for 2026 to 2028. Adjusted earnings before interest taxes, depreciation, and amortization (EBITDA) is expected to rise in the next three years, as is free cash flow. This should support the dividend growth.
Investors will want to pay attention to the Q2 2025 results that come out at the beginning of August. The price war that hurt margins last year appears to be over as rates offered by carriers are quite a bit higher now. Telus says it is going to take Telus Digital private. The other key subsidiaries are performing well. Telus Health and Telus Agriculture and Consumer Goods both delivered revenue growth of 12% and 20%, respectively, in Q1 compared to the same period last year.
Risks
The sharp decline in both immigration and international students will impact subscriber growth in the Canadian telecom sector. Regulatory risks also remain in place, although the government is focused on other challenges right now, so the telecom players might not be priority targets for some time. That being said, Canadians are still pushing for more choice and cheaper mobile and internet prices. Finally, a recession caused by high U.S. tariffs could lead to lower device sales.
Time to buy?
Assuming the company will deliver on its dividend-growth guidance, income investors might want to start nibbling at this level to secure the 7.4% yield. Near-term volatility should be expected, however, as the broader market is due for a pullback. A drop back to $20 on a market correction is possible, but this would be a good opportunity to add to the position if it occurs.
