Telus (TSX:T) fell more than 3% in intraday trading on Thursday after BMO cut its target price on the Canadian telecom giant’s stock from $23 per share to $19 per share, while also downgrading its rating. At the time of writing, the stock was trading at $17.73 per share with a market cap of $28.4 billion.
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The dividend growth pause raised eyebrows
Notably, BMO’s downgrade of Telus stock came a few days after the company hit pause on its dividend growth strategy. For a company that’s raised payouts regularly over the past decade, that marked a big shift.
Investors who’ve come to expect regular dividend bumps might be disappointed, but Telus says the payout — currently yielding over 9% — is staying exactly where it is. The move is part of the company’s broader capital plan to strengthen its balance sheet and reduce debt over the next couple of years.
Alongside the pause, Telus also announced it will phase out its discounted Dividend Reinvestment Plan (DRIP) over the next few years. That means investors reinvesting dividends won’t get the usual price break — a subtle but important shift in the company’s capital strategy.
What it means for investors
To ease concerns, Telus unveiled a detailed free cash flow growth target, projecting a 10% annual increase through 2028, with its dividend expected to be fully covered starting in 2027. Debt reduction and asset sales are also part of the plan. Still, investors are reacting cautiously, as the stock has lost nearly 5% of its value since the dividend growth pause announcement.
While I don’t expect much upside in Telus stock in the near term, its dividend and business fundamentals appear safe for now. For income-focused investors, a stable 9% yield from a major Canadian telecom stock is hard to ignore — especially in today’s volatile economic environment.
Related: Hear what Motley Fool Canada’s chief investment officer think about Telus today:
