Many investors might look at a stock that’s down on its luck and think, “Hard pass.” Yet when it comes to creating immense wealth, this is when smart investors dive in deep. They want to see whether the share price decrease has been overdone, offering an opportunity to get in for future gains.
That’s why today we’re going to look at TELUS (TSX:T), a dividend stock that’s down for now, but has solid future potential. So, let’s get into it.
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What happened?
First, let’s look at why TELUS stock is down in the first place. The company has shed about 4% over the past year, trading near $22 and well below pre-rate-hike highs. This came down to a few facts. First, there was high leverage, with a debt-to-equity (D/E) ratio of 207%. This heavy capital spending on fibre and wireless buildouts brought costs higher, along with debt. Furthermore, there was market skepticism about its dividend coverage given a payout ratio above 200% on earnings per share (EPS).
Beyond its buildouts, the dividend stock has also been expanding. During its latest earnings, it reported management aims to close its TELUS Digital deal, delivering on promised synergies and keeping churn low in the competitive wireless market. Furthermore, it also needs to prove it can bring down debt levels, which remain heavy. So, can it do it?
Into earnings
To find out, let’s dig into its latest earnings. TELUS stock recently reported its second quarter, with repairs underway. The dividend stock sold 49.9% of its tower business for $1.26 billion, immediately reducing debt. What’s more, its net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped, with a target of 3.55 times by the end of this year and three times by 2027.
Beyond debt, there’s more growth on the way. TELUS Health delivered 16% revenue growth, with 29% EBITDA growth in the second quarter. It now covers 157 million lives around the world, with LifeWorks synergies on track for $427 million in 2025. Its core telecom also performed, with 198,000 net customers added, and less than 1% churn for the 12th consecutive year.
Value and income
Yes, there’s been a drop, but now investors can get in on a deal. TELUS trades at 19.6 times earnings, with an enterprise value to EBITDA of 9.9. So, while not dirt cheap, it’s certainly a fair price for a national telecom cleaning up its balance sheet. And with a beta of 0.88, it’s a stock that remains far less volatile than the overall market.
All this and investors still gain access to a 7.5% dividend yield at writing. Plus, that’s supported by cash flow recently reaffirmed at $2.15 billion in free cash flow for 2025. Over time, as leverage falls and spending normalizes, dividend safety, too, will return. In the meantime, investing just $7,000 in this stock for now could still bring in $533 each year in dividends alone!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| T | $21.95 | 319 | $1.67 | $533 | Quarterly | $6,999 |
Bottom line
Altogether, investors can get a stable stock with debt reduction underway. For patient investors wanting passive income, it provides long-term growth that’s unmatched. So, if you want a smart stock that’s merely down on its luck, TELUS could be the one for you.
