It’s hard to pick just one dividend stalwart that every TFSA investor should buy. Indeed, there are many top candidates to form the foundation of your long-term TFSA portfolio. And while there’s sure to be a different top pick at any given point in time, I do think that one name stands out this October. Enter shares of Telus (TSX:T), which offers not only a stunning yield (currently at 7.6%) but also has the means to deliver on capital gains as management continues to execute on its turnaround. The company is investing heavily in its infrastructure to reinvigorate its longer-term growth profile.
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Telus has been doing a great job of managing costs: Lower rates will make it easier
Given the amount of capital expenditures, Telus is a natural beneficiary of a lower interest rate environment. Still, it’s not only lower interest rates and less weight from interest on debt weighing down the balance sheet that investors should get enthused about as Telus continues forward with its plans. The company has also been trimming costs while seeking operating efficiencies to unlock.
As AI looks to automate more mundane tasks while optimizing others (Telus recently teamed up with Samsung for work on an AI-powered network controller, a big headline that flew under the radar last month), Telus stands to move into the fast lane when it comes to paying back debts.
A rising dividend
And given that Telus has kept its “dividend promise” to investors, even amid industry challenges, I believe the dividend is far more durable than it appears. I think it’s on some very stable footing despite clear stumbles in the stock. The company lifted its payout when it would have been completely understandable if it had reduced the payout in half.
Either way, look for Telus to continue raising the dividend by a mid-single-digit rate every year, regardless of what happens with industry headwinds. Even if rivals get the better of Telus, limiting its growth, I still view the dividend as having staying power. Perhaps Telus’ managers are among the most shareholder-friendly in the industry. While the road ahead might not be much brighter, I do expect the worst is already in the books for Telus. Over the past year, shares have seemingly begun bottoming out.
Now up 7% in the past six months, I do view T stock as a name that’s worth bottom-fishing in, if not for the fat dividend, perhaps for a leaner, more efficient version of Telus that could continue to pay outsized dividends to investors for years to come.
Telus’ 7% yield looks safer than most. It’s certainly growthier!
Undoubtedly, chasing 7% yielders is a dangerous game and one that TFSA investors shouldn’t seek to play all too often. However, when it comes to Telus, I just can’t be bearish, given the big changes that have gone on behind the scenes and massive sums of free cash flow the firm generates. On the surface, shares of T look kind of expensive at 33.9 times trailing price-to-earnings (P/E). However, on a 19.3 times forward P/E basis, shares actually seem, more or less, fairly valued.
If Telus’s investments can accelerate growth, perhaps these multiples will seem too low compared to the earnings growth that lies ahead. Of course, time will tell. Either way, those in the market for a 7.6% yield should have a closer look at the name. It’s not every day you come across a cash cow with a massive yield and a commitment to keep rewarding shareholders with dividend raises.
