As we enter 2026, income-focused investors are gravitating toward TELUS (TSX:T), drawn by its attractive 9.3% dividend yield. Valued at a market cap of $27 billion, Telus is among the largest telecom companies in Canada.
The blue-chip stock is down almost 50% from its all-time high, as investors are concerned about high debt levels and a weak balance sheet. This drawdown has raised the dividend yield for Telus stock to more than 9% in December 2025.
Telus is currently overhauling its finances to address concerns about high debt and the safety of its dividend. The company’s primary goal is to reduce its debt while continuing to invest in new technologies such as artificial intelligence (AI) and 5G.
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A focus on cash flow
Telus plans to grow its free cash flow by at least 10% every year through 2028. For 2026, the company is targeting $2.4 billion in cash flow, compared to $2.3 billion in infrastructure spending. This is an increase from the $2.15 billion baseline expected in 2025.
Notably, Telus announced a pause in its dividend growth, while maintaining the current quarterly dividend of $0.4184 per share. This freeze is intended to bring the dividend-payout ratio down to roughly 75% of free cash flow. The annual dividend expense for Telus stock exceeds $2.5 billion, indicating a payout ratio of over 100% this year.
The company is also removing the discount for its dividend-reinvestment plan (DRIP). This reduction will happen in stages:
- In early 2026, the current 2% discount will drop to 1.75%.
- By late 2026, the discount will fall further to 1.5%.
- In 2027, the discount will hit 1%.
- By 2028, the discount will be removed entirely.
Telus aims to lower its debt levels to strengthen the balance sheet. It ended the third quarter (Q3) of 2025 with a leverage ratio of 3.5 times. The management outlined plans to reduce this multiple to 3.3 times by the end of 2026 and to three times by late 2027.
Telus is also looking for a strategic partner for Telus Health to help fund growth in this segment. Further, it plans to offload non-core real estate and the legacy copper network infrastructure.
However, Telus plans to invest $70 billion over five years in verticals such as 5G, fibre networks, and AI infrastructure, which should drive future cash flows higher. Additionally, the telecom giant expects AI revenue to increase from $800 million in 2025 to $2 billion in 2028.
Is Telus stock undervalued?
The core business for Telus continues to grow at a steady pace, given it added 288,000 total mobile and fixed customers in Q3, expanding its customer base to nearly 21 million connections, an increase of 5% year over year.
It also added 40,000 internet subscribers in the quarter, driven by its PureFibre network advantage. Telus extended a 15-year streak of positive wireline net additions, dating back to Q3 of 2010.
Meanwhile, Telus Health grew its sales by 18% and adjusted earnings before interest, tax, depreciation, and amortization by 24% in the September quarter.
Analysts tracking the TSX dividend stock forecast it to gain 27%, given consensus price target estimates. If we account for dividends, cumulative returns could be closer to 37% over the next 12 months.
