Forget about those beaten-down shares of Telus (TSX: T) for a moment as investor interest looks to pick up in the days leading up to its big quarterly earnings result. Of course, there’s this lingering fear of missing out if you’re a passive income investor who’s also interested in deeper value and potential for a sharp ricochet off multi-year lows. Bottom-fishing can be immensely rewarding if you get the timing right, but, unless you’ve got a pretty long-term time horizon, I’d argue that such a move could also lose one a considerable sum of cash.
At the end of the day, if you’re going to stick around long enough to collect the huge dividend, currently yielding 9.8%, even if a reduction is in the cards at some point over the next 18 months to three years, I’d argue that the value case still shines. But the price of admission could mean riding out continued volatility, and, yes, more downside. The stock has just a little over half of its value, but that doesn’t mean it can’t continue its free fall, especially as the industry stays in a bit of a tough spot.
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Quebecor
Quebecor (TSX: QBR.B) is another industry player that has the wind at its back and a multiple that looks worth getting behind. Of course, when Telus shares finally do turn a corner, things could get violent to the upside as the window to lock in that 10% yield finally does close.
At the same time, though, Quebecor has been firing on all cylinders of late, making it a great, more predictable growth play that might be able to deliver very generous dividend hikes as Telus stays on pause with future dividend raises.
You’re not getting a 10% yield from the likes of a Quebecor, but you are getting a decent 2.8% yield alongside some pretty solid momentum, which, I think, has a bit of room to the upside. Like Telus, quarterly earnings are coming up, and the numbers will dictate the next big move in the stock. While expectations have climbed markedly in the past year alone (alongside the valuation), I still think there’s room to impress.
The stock trades at a modest 15.9 times trailing price to earnings (P/E). That’s a bit expensive for Quebecor standards, but, given the momentum behind Freedom Mobile (it’s rolling out its 5G+ network quite quickly) and the potential for more share-taking as the consumer environment becomes tougher with the inflation to come, I continue to view Quebecor as the ultimate value player in the telecoms. Also, Telus stock goes for a richer 23.8 times P/E, even with that 50% haircut in the rearview.
The 5G+ moat is coming for Freedom
5G+ connectivity has been a major moat source for the Big Three telecom titans in recent years. But as Freedom Mobile makes up for lost time with its big investments to roll out that kind of modern core infrastructure, my guess is that the wind at Freedom’s back will only get stronger.
Beyond network upgrades and competitive pricing, perhaps it’s the customer service and promise of no hidden fees that could keep Freedom great in all sorts of climates. In the meantime, though, I’d look for Quebecor to stay in share-taking mode as value (high-speed data per dollar) becomes the name of the game as the firm looks to slowly but steadily drive up its APRUs (average revenue per user) as well via smart bundling.
In short, I like Telus for the yield and the risk-on turnaround potential. But for predictability, value, and dividend growth, Quebecor is a great play. Perhaps buying the two telecoms together could make sense, given their unique strengths.
