A 6% yield is common among dividend kings. However, when a dividend king’s yield increases to 8-9%, the element of risk increases. And the biggest risk for dividend kings is high debt. Most companies with stable and growing dividends are capital-intensive as they get assured free cash flow (FCF), which is the amount left after servicing debt and investing capital in the business. Telus Corporation (TSX:T) is currently in a risky situation of high debt.
When Telus paused its dividend growth in December 2025 after increasing it by 2.2% for January 2, 2026, investors panicked. Just seven months ago, in May, BCE (TSX:BCE) slashed dividends by 56% for the first time in 17 years after pausing dividend growth in December 2024.
Source: Getty Images
Is Telus walking in BCE’s footsteps?
For this, you need to compare three financial metrics:
1. Dividend payout ratio
This is the amount of FCF the company pays out in dividends. BCE’s ratio increased from 105% in 2021 to 125% in 2024. The only reason it could sustain this payout ratio was because of 34% enrollment in the dividend reinvestment plan (DRIP) that allows BCE to retain cash. However, this model is not sustainable in the long term, leading to a dividend cut to preserve FCF. Telus has a dividend payout ratio above 100%, which it is sustaining because 35% cash is retained in the DRIP. Once again, this is not sustainable in the long term. Hence, Telus has to increase its FCF to avoid the fate of BCE.
2. FCF growth
Both BCE and Telus have reduced their capital spending and resorted to deleveraging to increase their FCF as price competition has slimmed margins. In 2024, BCE’s FCF fell by 8.1% as company-wide job cuts increased severance pay expense. However, Telus’s FCF continued to grow in 2024 by 12% in 2024 and by around 13% in 2025. It expects to continue growing FCF by an average annual rate of 10% till 2028. Telus is in a better position than BCE as its dividend growth is aligned with FCF growth.
3. Net debt-to-Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
They both have been selling non-core assets to reduce leverage. BCE’s leverage ratio was 3.8 times in 2024 and remained unchanged till September 2025 as it used the sales proceeds to acquire Ziply Fibre. Meanwhile, Telus reduced its ratio from 3.9 times in 2024 to 3.3 times in November 2025 and aims to reduce it to 3 times by the end of 2027.
Are Telus’s dividends safe?
Telus has the FCF to service its debt and pay dividends. The only problem is the MVNO (Mobile Virtual Network Operator) regulatory change that has given small competitors access to Telus’s and BCE’s infrastructure to resell their mobile services at a lower price.
The price war has slimmed the margins, forcing Telus to restructure its business and rethink its dividend policy. A 3.3 times net debt-to-EBITDA and a 115% dividend payout ratio increase the risk of dividend cuts. Telus management has worked out a target leverage ratio of 2.2–2.7 times, which helps it grow dividends and invest in the business. For the next two years, the management will focus on deleveraging and unlocking value for shareholders.
Should you own Telus for its dividends?
Even if you are a risk-averse investor, Telus is a must-have in your portfolio as an 8.8% yield is impressive and there is a recovery rally in the short term. The company has paused dividend growth until the share price reflects the business performance. Telus is a stock to buy for capital gains from the recovery rally and not dividend growth over the next two years.
