Telus (TSX: T) stock has arguably been one of the most discussed super-high-yielding dividend stocks in the past year and a half. The yield remains well above the 9% level (9.08% to be precise), even after the most recent dip back to the teens. Undoubtedly, it’s not easy to be a Canadian telecom right now. If it’s not intense competition, it’s the limited growth runway and hefty capital expenditure bills taken on in recent years.
While the headwinds and pressures have clearly weighed down shares of T over the past four years (the stock’s off 46% from its peak), it’s quite amusing to see the dividend continuing to stand tall. Will this last another four years? That’s the big question that I’m sure every T shareholder is wondering right now.
With a dividend growth “pause” in place (no more 7–10% hikes for now), the dividend might not be going anywhere anytime soon. Arguably, another steep drop in the share price might offer investors a rare ticket to score a 10% dividend yield.
Of course, who knows how long the dividend will actually last if the comeback doesn’t really start kicking in as the company de-levers and optimizes.
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Why the dividend might survive
The company is doing a fairly decent job of chipping away at its debt load. And while it would be so much easier if the firm just cut the dividend and threw it at the debt pile, I do think that there’s an opportunity to keep the dividend “promise” to shareholders as the firm swims to greater lengths to improve the financial situation. Of course, it’s not the easy route, but, then again, I’d argue that Telus isn’t the first high-yield heavyweight to go down the harsh, windy path to keep the dividend intact.
For now, I do see the dividend as more solid than many analysts believe. Though, don’t get your hopes up for the dividend growth pause to be lifted anytime soon. I’d argue we need a year or so of quarterly earnings beats to get back on that track.
For long-term thinkers, though, I do think it is possible to see growth return once the yield compresses (perhaps below 7%) due to share price appreciation. For now, the dividend is generous enough as it is! And that has to be fine for most income investors punching their ticket at these lows.
The road ahead looks promising
Aside from debt repayment, the biggest capital expenditure tab might already be in the rearview. Indeed, Telus has spent so much to improve its 5G and fibre network. And while there’s more spending to come, I think the spending will be milder with time as the firm encounters a bit of a “capex drop-off” of sorts. As Telus looks to invest in AI-related services (it’s still small, but growing), we might be witnessing the emergence of a new cash flow engine.
Any way you look at it, Telus looks to be on the right track. The firm has made cuts elsewhere, and there might be more than enough financial wiggle room to power a comeback without having to chip away at the dividend. Personally, I’m a fan of the dividend, even as investors question the dividend growth pause.
In short, I view Telus stock as a high-yield bargain for those who are willing to be patient. If you’ve got the appetite for deep value and are willing to give the name three years, I think the risk/reward is tilted in favour of shareholders.
