When a high-quality telecom giant hits a rough patch, long-term oriented investors pay close attention. If you track the “smart money,” it is time to take a look at TELUS (TSX: T) stock, whose dividend yield hovers close to 10% right now.
TELUS stock is down 24% over the past year. While a steep pullback can unnerve some, well-informed insiders are aggressively buying the dip. Over the past six months, management and executives have forked out more than $6 million buying TELUS stock on the public market. This includes a massive $3.3 million transaction by CEO Darren Entwistle on December 19, a vote of confidence in the stock’s future investment returns potential.
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An executive transition and the TELUS dividend setup
This insider buying spree comes amid a major leadership handover. CFO Doug French is retiring at the end of June after a stellar 30-year tenure, including a decade as a CFO guiding TELUS’s operational growth and executing a financial strategy that has not cut the high-yield dividend since 1999. Gopi Chande, internally well-groomed for the position, will take over effective July 1.
Could a new CFO cut the dividend? That’s for Gopi and the executive team to decide. If TELUS were to follow the BCE route and slash its payout nearly in half, the dividend would still yield a near 5% yield at T stock’s recent trading levels, respectable enough to hold for decades of passive income. If the new CFO leaves the payout untouched, a 10% yield would double one’s investment in seven years – the Rule of 72 estimates.
While a strategic reset last year froze dividend growth, pausing a 22-year dividend growth streak, TELUS stock’s core business model isn’t broken. The $26 billion telecoms stock is navigating seemingly short-term pressure, giving long-term investors cheaper entry points into a utility-like business that generates positive cash flow that supported dividends through the two past recessions.
TELUS’s cash flow turning point boosts dividend safety
TELUS’s first-quarter earnings results may support a long-term “Buy” thesis on the high-yield dividend stock. The business is successfully transitioning from a capital-heavy infrastructure build cycle into a highly disciplined, cash-generative compounding phase that’s good for dividend coverage.
During the past quarter, free cash flow surged by 19% year over year to $583 million, in part due to operational efficiencies and lower capital spending. Management reiterated its full-year 2026 free cash flow target of roughly $2.5 billion (representing roughly 10% annual growth). The strategic initiatives in play, including sales of legacy copper real estate, should help TELUS achieve strong free cash flow growth rates through 2028.
If the organic cash flow growth works out, as it did last quarter, TELUS may sustain the high-yield dividend payout.
Risks to watch
The near $26 billion debt load on TELUS’s books commands respect. A new higher-for-longer interest rate regime would be costly. However, the interest costs may remain manageable thanks to a long average debt maturity profile of nearly 15 years at an average interest rate of 4.4%. Short maturities would imply high debt repricing risk.
The deleveraging strategy is gaining traction and management seeks to accelerate this by executing a $7 billion asset monetization pipeline, including finding partners for TELUS Health, and selling off the company’s $4 billion copper real estate portfolio. Any regulatory roadblocks that delay deals, or a cooler private equity market that shies away from deals may pause risks to TELUS’s strategic play, risking a dividend slash.
Time to buy?
Trading at a forward P/E of around 18, TELUS stock trades nearly 18% cheaper compared to its five-year average forward P/E multiple above 22. The dividend stock is cheaper.
Risks remain, such as hyper-competitive wireless pricing and bundling price wars that cap Average Revenue Per User (ARPU) while the $7 billion asset monetization requires stellar execution to clear its targets or it could stall if private equity cools.
However, the business core’s operational resiliency appears strong. TELUS added more subscribers last quarter and TELUS Digital’s enterprise artificial intelligence (AI) capabilities saw revenue from AI-enabling capabilities rise 22% year-over-year, with its “Sovereign AI Factory” completely sold out. New revenue growth sources are coming up.
With moderating capital expenditures, growing cash flow, and multi-billion-dollar catalysts on deck, TELUS’s dividend safety is improving. If the worst of the telecom macro headwinds are in the rearview mirror, a 24% drop in T stock price appears as a stellar long-term buying opportunity.
