Telus (TSX:T) is up 13% in 2025. Investors who missed the bounce this year are wondering if Telus stock remains undervalued and is good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends.
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Telus share price
Telus trades near $22 at the time of writing. This is up from the 12-month low of around $19, but still way down from the $34 the stock fetched more than three years ago.
Telecom companies use a lot of debt to fund their large capital programs that are required to expand and upgrade mobile and wireline communication networks. The sharp rise in interest rates that occurred in 2022 and 2023 triggered an extended pullback in the share prices of communications companies, along with utilities, pipelines, and other sectors with heavy debt loads.
The jump in interest expenses on variable-rate loans reduces profits and cuts into cash available for distributions or debt reduction. Higher bond yields drive up borrowing costs for issuing new debt to replace maturing bonds or to raise cash to cover capital programs.
In late 2023, the Bank of Canada signalled it was done raising interest rates. This triggered a rally in the share prices of most rate-sensitive stocks through 2024, with rate cuts in the last half of the year adding a new tailwind. Telus and its communications peers, however, missed the party due to price wars on mobile and internet services. In addition, Telus took a hit from declining revenues at its Telus International (Telus Digital) subsidiary.
Bargain hunters started to buy Telus earlier this year on the hopes that the worst is over for the company. Prices on mobile plans have risen considerably from the lows of 2024. Providers have apparently decided that they need to focus on generating decent margins more than fighting for market share at all costs. This could show up in the quarterly results as a positive revenue surprise in the second half of the year.
Risks, however, remain for Telus and its peers. A steep drop in immigration, including much lower international student numbers, will take a good chunk out of a major subscription growth segment this fall and into next year. Economic uncertainty connected to U.S. tariffs could push households and businesses to delay device upgrades or switch to more basic phone plans. A recession that causes a surge in unemployment would make it even harder to hit growth targets and could trigger a new price war as competitors battle for fewer customers.
Upside
Telus remains committed to investing in the expansion of its business. The company is building AI data facilities to provide Canadian business clients with an option to ensure that Canadian data stays in the country. Telus plans to take Telus Digital private. The other subsidiaries, including Telus Health, Telus Agriculture, and Consumer products, are performing well and could become significant contributors to revenue growth in the coming years.
On the debt side, Telus recently announced a deal to sell a 49.9% stake in its cell tower assets for $1.26 billion. The company will use the proceeds to shore up the balance sheet as part of a multi-year plan to reduce debt. Telus is also selling some real estate and is monetizing its copper holdings as part of the transition to fibre networks.
Time to buy?
Telus raised its dividend in 2025 and previously said it intends to deliver ongoing annual dividend growth of 3% to 8%, supported by rising free cash flow. That narrative could change if things get tough in the next few quarters, but investors who buy Telus at the current share price can already get a dividend yield of 7.5%.
Investors seeking capital appreciation will likely have to be patient, but there should be limited downside at this point, unless there is a surprise dividend cut. Assuming the dividend is safe, the stock should be an attractive pick right now for income investors.
