Shares of telecom titan Telus (TSX:T) look like a fantastic deep-value bet, especially now that the yield is flirting with 9%. And while I do think the dividend can move ahead with getting slashed, passive income investors looking to get into the name should still be aware of the downside risks that lie ahead.
Though the technical picture has improved drastically in the past couple of weeks, with shares of T gaining just shy of 10% from 52-week lows, investors might wish to be careful and ensure the rest of their income portfolio is well diversified in names that have well-covered yields (think dividend yields well south of the 6% mark). In any case, I think Telus stock is fairly valued at around $19 per share. At these depths, the shares go for around 24.4 times trailing price to earnings (P/E).
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Telus is great, but shares aren’t super cheap quite yet
Telus is not a steal, by any stretch, but also not all too expensive, especially when you consider that swollen dividend yield. With a potential head-and-shoulders bottom technical pattern that might just come to fruition in the coming weeks, investors should watch the name quite closely, especially if this is, in fact, the last chance to snag Telus stock with a yield well above the 8.5% mark.
Of course, the fundamentals and price of admission matter far more than the technical backdrop. But for investors insistent on more value and a more promising dividend-growth trajectory, there are some better names out there on the TSX Index.
Quebecor’s yield might not excite, but shares are too cheap
Whether you’re looking for diversification beyond the likes of a Telus or if you’re looking for something cheaper and growthier, fellow Canadian telecom play Quebecor (TSX:QBR.B) definitely stands out. Of course, there are few, if any, alternatives to Telus and that towering 8.8% dividend yield, at least at this juncture. Still, I see Quebecor as bringing a lot to the table, especially for investors looking for a bit of a pair trade as the Canadian telecom scene looks to catch a bid higher for a change.
When it comes to Quebecor, it’s all about the aggressive expansion. The firm has done a great job of capturing market share with its Freedom Mobile business, which could continue to close the gap with its larger rivals in the next four to five years. Undoubtedly, when it comes to Quebecor, it’s all about taking market share outside of the province of Quebec. And thus far, investors have liked what the firm has delivered.
The stock is up nearly 57% over the past year, crushing its larger telecom peers. And while a pullback seems to be in the works, with QBR.B stock slipping more than 6% from its highs, I like the growth story and the potential for earnings growth to power even more generous dividend raises. What I like even more than the growth narrative is the price of admission. The stock goes for just 13.9 times trailing P/E.
And while the 2.81% dividend yield is certainly not exciting, I do see ample room for growth. So, if you’re a bit unhappy with Telus’s dividend-growth pause, perhaps nibbling into Quebecor could be a worthy bet, especially as the broad telecom scene experiences a bit of relief this year. In short, Telus is great for yield (and technical timeliness), while Quebecor is a high-growth, momentum, and value play.
