Beyond Telus: A High-Yield Stock Perfect for Income Lovers

Although Telus may offer a yield of nearly 10% today, this high-yield stock that’s perfect for dividend investors has far less risk today.

Key Points
  • Telus (TSX:T) now yields near 10% because its share price has plunged amid heavy debt, slowed growth, and a stretched payout—raising real risk the dividend could be cut.
  • Diversified Royalty (TSX:DIV) yields roughly ~6% but earns royalties on top‑line sales from everyday brands, giving it a more predictable, downturn‑resilient income stream.
  • For income investors, prioritize payout sustainability and leverage: DIV looks like the lower‑risk high‑income pick today unless Telus meaningfully strengthens FCF and reduces debt.

With a dividend yield that continues to climb, and now sits just below 10%, it’s no surprise that Telus (TSX: T) is getting a tonne of attention from income investors right now.

At first glance, that kind of yield can look like a major opportunity. However, when yields get that high, it’s usually not because the dividend has suddenly become more attractive. It’s because the stock price has fallen, and typically, that happens for a reason.

And in Telus’s case, those concerns are real. The company is currently dealing with elevated debt, a stretched payout ratio, and slowing growth across the telecom sector.

So, while the dividend hasn’t been cut yet, it has stopped growing, and there is increasing concern from the market that it could need a reset.

That’s why income investors have to look beyond just the headline yield when looking at dividend stocks to figure out how reliable that income actually is.

Because if your goal is to buy high-yield stocks, you don’t need to take on that kind of risk just to maximize your income. Plenty of other dividend stocks offer strong income, but with very different underlying business models, like Diversified Royalty Corp (TSX: DIV).

coins jump into piggy bank

Source: Getty Images

Why this high-yield stock could be better than Telus for dividend investors

In addition to the fact that Diversified Royalty isn’t facing significant headwinds at the moment, one of the biggest reasons it’s a top pick for income lovers is how it generates its income.

Unlike Telus, which has to constantly invest billions into infrastructure just to maintain and grow its network, Diversified Royalty doesn’t operate businesses directly.

Instead, it owns the trademarks and royalty rights to a portfolio of well-known brands like Mr. Lube, BarBurrito, and Oxford Learning.

So instead of relying on profits after expenses, it collects a percentage of top-line revenue from those businesses. That’s crucial because while most companies generate income based on what’s left after costs, Diversified Royalty gets paid based on overall sales.

That means that even if a partner’s margins get squeezed, the royalty stream still holds up as long as customers keep showing up.

In addition, Diversified Royalty is built to return the majority of its cash flow to investors. That’s why it can consistently pay such a significant dividend, which has reached as high as 8.8% over the last year. Today, you can buy it at a yield of roughly 6% with far less risk than Telus.

Why the income can hold up in tougher environments

Now, less risk doesn’t mean no risk. If consumer spending slows, that will impact Diversified Royalty’s revenue.

However, the difference is that even if spending slows, revenue may decline modestly, but it won’t suddenly disappear because many of the brands it partners with are intentionally tied to everyday spending.

For example, people still need oil changes, and services like education support don’t just vanish in a weaker economy.

We’ve already seen that play out during the pandemic. Even when large parts of the economy were shut down, the company’s royalty streams didn’t disappear. They were impacted, but they continued to generate income.

And more recently, the business has continued to show steady momentum. Revenue has been growing, thanks to expansion from its existing partners as well as new agreements that lock in long-term royalty streams.

So, while Telus may still appeal to some investors, especially if it can stabilize its balance sheet and return to growth over the next few years, there’s no question the high yield it pays comes with a tonne of risk today.

Diversified Royalty, on the other hand, offers a completely different kind of opportunity, with its model built around generating consistent cash flow from top-line revenue, which is why it’s a stock that’s perfect for income lovers.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Structure My $14,000 TFSA for Constant Income

If you have $14,000 saved in your TFSA, here is one easy investment strategy to earn $50 of tax-free monthly…

Read more »

woman looks at iPhone
Dividend Stocks

I’m Not Selling Telus After the 55% Dividend Cut: Here’s Why

Contrary to what the market seems to be saying, Telus Corporation (TSX: T) still has a lot going for it.…

Read more »

monthly calendar with clock
Dividend Stocks

A No-Nonsense 3.7% Dividend Stock That Can Pay Retirees Monthly

This no-nonsense dividend stock has returned more than $3.4 billion to shareholders through dividends since 2013.

Read more »

dreaming of financial success
Dividend Stocks

3 Questions to Ask Before Buying a Dividend Stock

Buying a dividend stock? Here are three questions to help you look beyond the yield, with examples from Enbridge, Fortis…

Read more »

Woman in private jet airplane
Dividend Stocks

Make $100 a Month Tax-Free: How Much to Invest in Diversified Royalty and Where

The TFSA is the ultimate investment account to place your money and earn tax-free income.

Read more »

man in bowtie poses with abacus
Dividend Stocks

Passive Income From Dividends: What Canadians Can Realistically Expect

Here's the actual dividend math the passive income gurus won't show you.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

RRSP, TFSA or Both? A Quick Guide by Income Level

Your RRSP and TFSA are complementing accounts that you can use to shield your income from taxes.

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Dividend Stocks

Buying Your First Home? The $8,000 FHSA Deduction Most Renters Miss

An eligible renter's $8,000 FHSA contribution can save $2,400 at a 30% tax rate, with the purchase date guiding investments.

Read more »