Chasing yield can be pretty dangerous, especially if your monthly budget stands to be in jeopardy should a dividend cut actually come to fruition. Undoubtedly, higher yields tend to accompany limited growth prospects, downside, and, perhaps worst of all, dividend cuts.
Of course, not every swollen yield will be axed, but the risk does certainly get higher when you’re well above 8% in an environment where the risk-free rate is nosediving. And while I wouldn’t dare formulate an income stream based solely on a handful of names with ultra-high yields, I do think that it can make quite a bit of sense to nibble on a few shares of a high-yielding stock that’s fallen off but could get back on the road to recovery.
Telus stock’s yield is incredibly swollen. But it’s not about to burst, at least in my view
Telus (TSX:T) stands out as a high-yielder that might finally be worth picking up, even if you’re not a fan of taking a chance on those deep-value plays. With the stock viciously reversing course in late summer, sinking over 10% from August highs, investors now have a second chance to buy shares of T while the yield is above 8%.
Is the yield safe? Of course, only time will tell, but I would treat recent dividend hikes as a sign of confidence that management prioritizes the stability of the payout. It’s been rough sailing through this year, but I have a feeling that the window to buy while the yield is this high might close at some point over the medium term.
Of course, Telus’ hardships might be too much for some safe investors to get behind the stock as we head into the final two months of the year. In any case, I’m a firm believer that the telecom can keep cutting costs such that it can still continue to fund the hefty payout while enhancing its network. With interest rates falling, the capital expenditures involved with boosting the network quality, I think, should be a huge plus for potential dip-buyers seeking a catalyst. Additionally, I think AI could be a wild card that few investors are thinking about.
Telus might be able to use AI and agents to make things more efficient
While the telecoms can’t suddenly shift gears to becoming AI infrastructure players, I do think that AI can assist the top telecoms in trimming away at everyday operating costs. Whether we’re talking about using AI in customer service, streamlining the IT workflow, or general decision-making at the managerial level, I see a ton of areas where AI could help Telus run smoothly as it looks to reach more users while potentially passing on the savings to win some wireless market share away from rivals.
With Telus recently collaborating with Railtown AI Technologies for work on AI agents, I do think that it is already on track to get its financials where they need to be to keep the huge payout (and dividend growth in the coming years) while continuing to spend on growth endeavours.
In the meantime, Telus stock’s 8.2% yield, I think, is worth pursuing, as AI might be that transformational force that helps power a comeback in the shares as the telecom titan looks to sustain a rally for a change.
