Telus (TSX:T) is off to a positive start in 2026. Contrarian investors seeking high-yield value stocks are wondering if Telus is undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
Telus share price
Telus trades near $19 per share at the time of writing. The stock is up about 4% so far this year, driven by bargain hunters seeking a good dividend yield and a shot at some decent capital gains.
Investors who got burned trying to catch the bottom over the past four years, however, are wondering if this time things are going to be different.
Upside
Some of the pain points that previously hurt Telus now appear to be in the rearview mirror. Soaring interest rates in 2022 and 2023 caused the initial decline in the stock. Telus has a lot of debt sitting on the balance sheet. The steep increase in borrowing costs over such a short period of time drove up interest expenses and pushed up the rates bond buyers wanted to receive on new debt sales. Higher debt costs cut into profits and can reduce cash that is available for distributions or debt reduction. The Bank of Canada reduced interest rates in 2024 and 2025. This has helped ease pressure on companies with excessive debt.
Telus has also made progress on its efforts to monetize non-core assets to pay down the debt load. It sold a 49.9% stake in its wireless tower division last year for $1.26 billion. The company is also selling copper stockpiles and non-essential real estate. In addition, Telus plans to monetize part of its Telus Health subsidiary, seeking up to $2 billion from a strategic partner. This would help ease concerns about the balance sheet.
Price wars among communications providers in 2024 reduced margins and drove up marketing costs for Telus and its peers as they battled for new mobile and internet customers. The race to the bottom on pricing ended last year with limited deals emerging during the traditional sale periods. Margins could improve through 2026 if plan prices stay at current levels.
Another hit came from the decline in revenue at Telus Digital (Telus International). This led to Telus taking the subsidiary private last year. The move is expected to deliver $150 million in annualized cash synergies.
Risks
Borrowing costs remain elevated and any jump in inflation could push the Bank of Canada to raise rates again.
The drop in the number of newcomers to Canada is also going to continue as the government tries to return balance to the housing market. International students, in particular, were a good source of new subscribers for mobile and internet service providers.
Dividend
Telus recently put dividend growth on hold in an effort to stop the drop in the share price after a number of analysts said payout growth might not be sustainable due to the debt load and challenging market conditions.
Management’s decision to pause dividend increases seems to have put a floor under the stock price. At the time of writing, investors can still get a dividend yield of 8.9%.
The bottom line
Telus isn’t out of the woods just yet, but management is making progress on the turnaround efforts. As long as debt continues to drop and revenue holds up, the current dividend should be sustainable.
If you have a contrarian investing style, Telus deserves to be on your radar. Near-term volatility is expected, but you get paid well to wait for the recovery. There is decent upside potential if things go as planned.
