Telus (TSX: T) is one of Canada’s big telecom stocks. That alone should make Telus a defensive pick for any portfolio. But Telus has spent the past several years under pressure from higher interest rates which, in turn, have put pressure on valuations. This raises the question many investors are asking: Should I buy Telus stock right now?
To be fair, it’s not just Telus that has felt the pressure of compressed multiples. That pain was felt across all of Canada’s telecoms, and even beyond the sector in other areas of the market.
Let’s take a moment to acknowledge the struggles that Telus has and continues to face.
Source: Getty Images
Telus has pulled back to value territory
If there were a word to describe how Telus has fared in the past two years, it would be interesting. As of the time of writing, Telus stock is relatively flat, showing a gain of under 1% year-to-date. Extend that window out to a full 12-months and the telecom is down nearly 17%.
Over the past five years, that dip nearly doubled to over 30%.
That dip, fueled by rising interest rates, led to some unintended consequences. That includes both the rising cost and amount of debt Telus has, and the rising yield on its quarterly dividend.
Telus has been in the middle of a long capital‑intensive investment cycle. That includes expanding its fibre network and several ongoing spectrum purchases.
Expanding the network and purchasing new spectrum are key growth drivers for Telus. In short, they need to be done, but the bill came when financing costs were significantly higher.
Adding to those woes is Telus International. Restructuring of that segment on its own isn’t significant, but it adds to the telecom’s woes creating the current backdrop and decline of Telus stock to $18.
Why it’s not all bad news
Despite the share price weakness, Telus continues to show resilience across its core operations. Telus’ core subscription business remains solid
The wireless segment in particular continues to showcase steady growth. That growth is fueled by a focus on customer service and network quality, visible in the considerably lower churn rates over its peers. This has helped Telus to maintain a stable ARPU (average revenue per user).
Turning to the fibre build‑out, that remains a central pillar of Telus’s long‑term strategy. The growing demand for additional and faster data is pushing more households to transition to fibre. This, in turn, fuels Telus’ improvements in customer satisfaction and pricing power further.
Another area often dismissed is Telus Health. That segment continues to expand its footprint, benefiting from the rising demand for digital health solutions. Prospective investors should note that the growth potential from that business is not fully realized.
What about the dividend?
One of the main reasons why Telus stock remains popular with investors is its quarterly dividend. At the current price of $18, the yield comes in at an elevated 9.3%, handily making it one of the highest-yielding on the market.
The real question for investors is sustainability. Telus’s payout ratio has been stretched in recent years, and heavy capital spending has added to those free cash flow woes. That ultimately was a driving factor in Telus’ decision to pause its popular dividend growth program.
This allows the dividend to remain at a more sustainable level while Telus turns its focus to debt reduction.
Should you buy Telus stock today?
Telus offers a strong wireless business, an expanding fibre network, and long‑term potential in digital health. As capital spending declines, cash flows should improve. If anything, the current discounted valuation offers a unique entry point that may not persist much longer.
The flip side is that Telus still faces meaningful headwinds. That includes significant debt, stubborn interest rates, and a restructuring of its Telus International segment. As a result, investors without an appetite for risk may be inclined to look elsewhere.
At $18, Telus suits long‑term, income‑oriented investors who can tolerate some volatility. That will drive the yield back down to even more sustainable levels.
In my opinion, a small position in Telus stock is an intriguing option to consider now as part of a larger, well-diversified portfolio.
