Sometimes, it feels so easy to build a long-term retirement oriented portfolio that doubles investors’ wealth. The Rule of 72 sets a clear benchmark: to double your capital every decade, you need a compound annual return of roughly 7.2%. Right now, TELUS (TSX:T) stock presents a compelling case to not only meet but potentially exceed that target, offering a high-yield dividend foundation with a path to capital appreciation for a potential 10% total annual return as the $29.5 billion telecommunications industry giant navigates a new deleveraging path.
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Why TELUS stock is a contrarian blue-chip with a plan
TELUS enters 2026 as a contrarian investor’s top stock to buy. While its elevated yield, now lower at 8.8% following a share near 10% price recovery from its December lows, may raise eyebrows, it stems from market overreaction to its debt, not essentially a broken business model. Management has made a prudent strategic pivot, pausing dividend growth to aggressively strengthen the balance sheet. The quarterly dividend remains secure at $0.4184 per share, providing a reliable regular income stream every three months.
The company is focused on reducing its leverage, targeting a net debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio reduction from 3.5 at September 30, 2025 to three times by year-end 2027. Key to this plan is a focus on 10% annual free cash flow growth through 2028, and potential asset monetization. This deleveraging plan is central to the stock’s re-rating potential.
Building the 10% total return with TELUS stock
The thesis for a 10% return is built on two components: A solid passive-income boosting 8.8% dividend yield, and slow but steady capital appreciation.
Given the high-yield foundation, a $10,000 investment at current prices generates approximately $878 in annual dividend income. This 8.8% yield provides a substantial margin of safety and does the heavy lifting for your total annual returns.
The capital appreciation component could be an easy low hurdle. To achieve a 10% total annual return, the share price needs a very modest increase of about 1.2% annually. Confidence in this stems from visible catalysts: execution on deleveraging targets, strong insider and corporate share buying, and analyst price targets that imply meaningful upside.
Potential scenarios for 2026
The base case for a 10% total annual return is just too easy: Management executes its deleveraging and free cash flow growth plan steadily. Debt declines, and the market rewards this stability with a slight multiple improvement delivering 1.2% price appreciation for the remainder of 2026, combining with the 8.8% yield to hit the double-digit return target.
The bull case: A potential 20% total return for 2026. This may happen as deleveraging accelerates, perhaps aided by a strategic asset sale or a significantly favorable interest rate decline. In this scenario, investor confidence surges, driving significant capital gains of 11.2% on top of the high yield. TELUS stock is already up 5.6% year to date.
The bear case is encouraging still. It involves a yield only return. Wide economy or operational headwinds may cause share price stagnation. Here, your return consists solely of the near 9% dividend, which remains a strong outcome in a flat market. Should the stock price weaken, investors may still hold into 2027 shopping for a rebound, while avoiding realizing capital loses.
I am a long-term-oriented investor type, so I would comfortably munch on the juicy dividend over the next five to ten years while giving management the chance to execute its noble plan and for capital gains to pile up.
Risks to acknowledge
The high yield on TELUS stock comes with risks to monitor: while the dividend’s prospective free cash flow payout rate of 75% appears safe, TELUS must deliver on its promised double-digit free cash flow growth through 2028. Price competition may thin out cash flow margins while the telecom sector continues to face constant regulatory pressure.
The Foolish bottom line
TELUS stock offers a high-conviction blend of substantial immediate income and a clear turnaround narrative. For a $10,000 investment, it represents a chance to secure an 8.8% yield from a Canadian blue-chip while positioning for capital appreciation as its deleveraging plan progresses. The path to a potential 10% total return is realistic, supported by a disciplined corporate strategy. While not without risk, the current proposition provides a compelling margin of safety for patient, income-focused investors.
