Canada’s telecom stocks have long been regarded as reliable defensive picks. But that historical view of telecom stocks has changed in recent years, leading investors to question whether that still stands true.
Specifically, a wave of dividend freezes and cuts has hit Canada’s major telecoms in different ways. That steady dividend growth came while the telecoms invested heavily in rolling out 5G and fibre networks, while expanding spectrum.
This put pressure on payout ratios, which was also compounded by the rise in interest rates over the past few years. As the stock prices stalled, then dropped, yields began to rise.
Ultimately, this led Canada’s big telecom stocks, BCE (TSX: BCE), Telus (TSX: T) and Rogers Communications (TSX: RCI.B) to alter their payouts, freeze dividend growth, or scale back discounted DRIP programs.
This has questioned which of the big telecoms is a suitable investment right now, particularly among new investors.
Let’s try to answer that by taking a look at what each telecom stock can offer.
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A temporary pause to a high-yield dividend
The first telecom stock to mention is Telus. Of the big three telecoms, Telus has the largest dividend yield. As of the time of writing, Telus offers a quarterly payout that carries an 8.8% yield.
Late last year, Telus announced it was pausing its semi-annual dividend increases. Before that pause, Telus had provided investors with annual or better increases for two decades.
While that dividend remains paused, Telus plans to focus on stabilizing its balance sheet. Telus’ decision to pause increases reflects pressure on its payout ratio and balance sheet, amplified by a weaker share price.
Some of the changes that Telus has moved to implement include scaling down its discounted DRIP program to reduce dilution and preserve cash.
Does this mean Telus is still a telecom to invest in? For investors seeking income, Telus remains an attractive option. The caveat there is that investors may not see further growth from that dividend until the stock price recovers.
As of the time of writing, Telus’ stock is down 7% over the trailing 12-month period, and down nearly 30% over the past five years.
Holding steady when it comes to yields and growth
The next telecom stock to consider is Rogers. Rogers suspended its annual increases several years ago. Since then, the telecom has opted to raise its dividend only when conditions allowed.
In other words, Rogers has prioritized paying down debt and investing in growth over providing dividend upticks. As of the time of writing, Rogers offers a dividend of 4%.
That dividend comes in lower than its peers, but it also offers a more conservative payout ratio and a history of uninterrupted payments.
Like Telus, Rogers has reduced its DRIP discount to redirect more cash toward network investments.
For investors seeking a steady income from a telecom stock with an improving balance sheet, Rogers may represent a viable option.
A big dividend cut comes with a cleaner balance sheet
The last of the big telecom stock options to consider is BCE. BCE provided investors with a massive yield, promising investors steady growth for years. After the impact of rising interest rates finally compounded rising debt and sent its payout to unsustainable levels, BCE responded by slashing its dividend.
BCE implemented a 56% dividend cut. That leaves the payout at $1.75 per share, or a yield of 5.1%. BCE’s axe didn’t stop with the dividend. The company moved to slash costs across the board and even divest from other assets.
That included BCE selling off its stake in MLSE, which it used to invest in growth initiatives such as its Ziply Fiber acquisition.
The trade-off for investors is that BCE no longer has the high yield it previously did, nor can it offer annual upticks. In exchange for that cut, BCE now has a lower payout that allows it to continue investing in growing its core business.
Which telecom stock should you buy?
Prospective investors considering a telecom stock to buy have a choice of options.
Those who prioritize yield will lean towards Telus. Investors who seek safety may find Rogers more appealing. Finally, those who want to see growth may find BCE the best investment.
Ultimately, the better telecom stock depends on whether an investor prioritizes yield, stability, or long‑term balance‑sheet repair.
