Canadian telecom stocks were once considered among the safest dividend investments on the Toronto Stock Exchange (TSX). However, investor confidence in the sector weakened after BCE reduced its dividend last year, reminding investors that even blue-chip income stocks are not immune to financial pressure.
That brings us to TELUS (TSX:T), which currently offers a massive dividend yield of about 9.8%. At first glance, that payout looks incredibly attractive for income investors. But should you buy the stock for its yield alone? The answer is not simple.
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TELUS’s dividend comes with risk
A nearly 10% dividend yield often signals that the market expects trouble ahead. In TELUS’s case, investors have good reason to be cautious.
For years, TELUS has built a reputation for consistent dividend growth, typically increasing its payout twice annually. Recently, however, that momentum has stalled. The company has now maintained the same quarterly dividend for three consecutive quarters, a notable change from its historical pattern.
This pause may reflect management’s effort to preserve cash flow and strengthen the balance sheet. At the end of the first quarter, TELUS had a net debt-to-equity ratio of roughly 75%. While its BBB- credit rating from S&P remains investment-grade, the company still faces pressure from elevated borrowing costs and intense competition in the telecom industry.
Investors should recognize that a dividend cut is a real possibility. Still, that may not necessarily be bad news for long-term shareholders.
New CEO could spark turnaround
One major reason investors may want to keep TELUS on their radar is the arrival of new CEO Victor Dodig, the former head of CIBC, who officially takes over on July 1.
Dodig earned a strong reputation during his tenure at CIBC, where he improved the bank’s balance sheet, expanded operations through acquisitions, and strengthened customer satisfaction. His leadership experience could be exactly what TELUS needs during this challenging period.
Under Dodig, TELUS could pursue strategic changes such as asset sales, operational restructuring, or even a dividend reduction to free up capital for debt repayment and future growth investments.
Potential divestitures could include TELUS International, which has struggled with margin pressure and costly acquisitions, along with TELUS Agriculture, a business segment that has yet to deliver meaningful results.
Although these moves may create short-term uncertainty, they could ultimately position TELUS for a healthier and more sustainable future.
Should investors buy TELUS stock today?
Investors should not buy TELUS expecting its current 9.8% yield to remain untouched. A dividend reduction, potentially by half, appears increasingly possible. However, even after such a cut, the stock would still yield approximately 4.9%, which would remain competitive compared to the broader Canadian market yield of roughly 2.3%.
At the same time, the stock may offer recovery potential. According to Yahoo Finance, analysts currently have a consensus price target of $20.28 for TELUS shares. With the stock recently trading near $17, that implies possible upside of nearly 19% over the next year.
Investor takeaway
TELUS is no longer the low-risk dividend stock it once appeared to be. The high yield reflects legitimate concerns about debt levels, slowing growth, and the sustainability of the payout. However, the arrival of Victor Dodig could mark the beginning of a multi-year turnaround story.
For patient investors willing to accept excess risk, TELUS may offer an appealing combination of income and recovery potential. Just do not buy the stock assuming the current dividend will stay intact.
