Most Canadian dividend stocks are enjoying a rally as oil and gas prices have jumped. The ones that have dipped are for fundamental reasons. In this environment, you need to be cautious when buying stocks at a dip. Telus (TSX:T) stock has dipped 23% in a year, with a sharp 10% dip in April alone. Although the reasons for the dip are genuine, it is a stock to buy and hold for years.
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Why did this Canadian dividend stock fall 23%?
Telus stock fell significantly in April over concerns of a possible dividend cut. However, the first-quarter earnings on May 8 showed that the company is on track to meet its 2026 outlook of sustaining its dividend per share and increasing its free cash flow (FCF) by 10%. The dividend growth pause and an increase in FCF improved the dividend-payout ratio to 73% in the first quarter of 2026 from 76% a year ago.
However, this number excludes the dividend amount allocated to the dividend-reinvestment plan (DRIP). After adding this, the payout ratio is 112%. Telus is looking to address this issue by reducing the discount on DRIP shares from 2% to 1.75% and gradually phasing it out. The biggest concern of Telus is its debt, which it aims to reduce to three times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2027.
All these concerns have kept Telus stock down.
Why is this dividend stock a buy now and hold for years?
Telus continues to see its average revenue per user (ARPU) slip, but the pace of decline has slowed to 1% from 3.7% in the first quarter of 2025. However, it has increased its subscriber base by 6%. The company has retained $3.1 billion in liquidity from the sale proceeds of its non-core businesses.
These are tough times, but the company’s management is intact and strategically addressing every bottleneck one at a time. At a time when companies are seeing management changes, having stable management is enough to own the stock.
The years 2026 and 2027 could be volatile as investors keep a close look at the net leverage ratio and dividend payout ratio. The stock price has already dipped to its multi-year low of around $16 and was tagged oversold, with a Relative Strength Index (RSI) of 20. It is now trading above $17 and has an RSI of 53. The RSI measures whether trade activity is skewed toward buying or selling. An RSI below 30 means the stock is oversold.
An oversold stock has a limited downside. And if the management shows promising outcomes, it could surge significantly.
Although the telco is doing everything in its power to sustain dividends, the option of a dividend cut cannot be ruled out. In fact, a 40% dividend cut could save Telus more than $1 billion in annual dividend payments, which it can use to reduce its $30 billion debt and unlock some financial flexibility.
Investor takeaway
Telus stock is down 23%, and for a good reason. Should you buy Telus’s shares? It depends. If you are prepared to take a hit of a dividend cut or wait for three to five years till its debt levels stabilize, Telus is a buy. The 9.59% dividend yield comes with its risks. If you buy the stock at the current price of $17.37, you can get $1.67 in annual income.
If Telus’s management cuts dividends by 40% to $1.0 per share, you still get a 6% yield. Moreover, the financial flexibility it will unlock could drive the stock up. When this will happen is difficult to say.
If the management sustains its dividend and manages to reduce its debt in the next two years, you will lock in a 9.59% dividend yield for a long time. In both scenarios, Telus could bring returns for its shareholders.
