Telus (TSX:T) recently announced a plan to put dividend hikes on pause, hoping to put a bottom under the falling share price due to balance sheet concerns.
Contrarian investors are wondering if Telus stock is now oversold 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 long-term returns.
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Telus share price
Telus (TSX:T) trades near $18.50 at the time of writing. The stock is down from $34 in 2022 and recently hit a low not seen in more than a decade.
The steady decline over the past three years has multiple causes. Soaring interest rates in Canada triggered the bulk of the pullback in the second half of 2022 and through 2023. Telus carries a lot of debt on its balance sheet, so rising debt expenses reduce profits and cut into cash that can be used to reduce debt or pay dividends.
Most rate-sensitive sectors rebounded in 2024 as the Bank of Canada started to reduce rates. Telus and its communications peers, however, continued to face headwinds, largely caused by price wars for mobile and internet plans. Telus also took a hit from weaker revenues at its Telus Digital (Telus International) subsidiary, which it eventually took private this year.
Pricing for mobile and internet plans stabilized in 2025. That should help margins, but the sector is struggling with a large drop in immigration to Canada, particularly students.
Until recently, Telus had maintained its dividend-growth policy. The market, however, hasn’t been convinced that the company can generate the cash flow needed to reduce debt and raise distributions. As the stock dropped to the point where the dividend yield drifted above 9%, management had to make a move.
Opportunity
Telus is working to reduce its debt level. The company sold a 49.9% stake in its cell towers for $1.3 billion earlier this year to raise capital. It is also monetizing non-core real estate and selling the copper stockpiles that it built up as it transitioned to fibre over the past few years.
Telus Health and Telus Agriculture and Consumer Goods are other subsidiaries that are growing at a steady clip and could also be monetized through an initial public offering, or a sale to an equity partner. The faster the company makes progress on shoring up the balance sheet, the more likely it is that investors will feel comfortable with the safety of the dividend.
Risks
Immigration will remain low for the next few years under current government guidelines, so there are limited opportunities for growth aside from luring customers from competitors. If another price war emerges in the telecoms sector, Telus and its peers will all see margins get squeezed.
A recession is also possible as tariffs impact trade to the United States. Companies might start to trim more staff, which would impact phone sales to corporate clients. Overall inflation has slowed, but prices for core essentials remain very high, putting pressure on households. This could force people to hold on to older mobile phones for longer, or to downgrade to cheaper mobile plans.
Time to buy?
The decision to pause dividend increases should help ease the pressure on the stock in the near term. At the time of writing, the dividend yield is 9%, so income investors who are of the opinion that the dividend is safe at its current level might want to start nibbling for the generous return.
Contrarian investors more focused on total returns could take a small position now and maybe wait for the company to make more progress on reducing debt before adding to the holding. There is decent upside potential if Telus can deliver on its plans to strengthen the balance sheet, but economic and sector headwinds could disrupt the process.
- Related: Hear what Motley Fool Canada’s chief investment officer has to say about Telus
