Contrarian investors are searching for unloved TSX dividend stocks that might be attractive right now to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
In the current market conditions, where stocks are near record highs in many sectors, there are still a few dividend names for patient investors to consider.
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Telus
Telus (TSX: T) trades near $17 per share at the time of writing compared to $34 at one point in 2022.
The pullback over the past four years has several causes, of which some challenges still persist.
Initially, Telus declined as a result of the sharp spike in interest rates in 2022 and 2023 when the Bank of Canada and the U.S. Federal Reserve had to boost rates to battle soaring inflation. Telus carries a significant chunk of debt on its balance sheet. This is common for telecom companies that need to invest billions of dollars every year to expand and upgrade their wireless and wireline communications networks.
Rate hikes instantly impact variable-rate debt expenses. The jump in borrowing costs in the bond market causes grief when existing bonds issued at lower rates mature and need to be replaced by issuing more expensive debt. When rates rise or fall gradually, the market typically doesn’t worry too much. However, the sharp increase that occurred over such a short period of time triggered concerns that Telus would have to cut its dividend.
Rate relief arrived in 2024 and 2025, but Telus didn’t rebound due to operational challenges. The company’s Telus Digital (Telus International) subsidiary ran into revenue issues, and Telus had to ultimately take it private. At the same time, the telecom sector went through a nasty price war that pinched margins just as Canada closed the door on new entrants to the country. The plunge in the arrival of international students, in particular, cut into an important source of new phone and data customers for the communications providers.
In the near term, these challenges will likely persist. Inflation is creeping up again, which could lead to new rate hikes by the central banks. Canada will also keep the doors closed for some time as part of its effort to rebalance the housing market.
Opportunity
Telus is working to reduce its debt load. The company sold a stake in its wireless towers and is looking to monetize its Telus Health division. Telus is also scaling back its capital program. These efforts will help the company reach its deleveraging targets as it moves to ease pressure on the balance sheet.
Free cash flow growth is currently targeted to be at least 10% per year through 2028.
As part of its revenue expansion plan, Telus is investing in sovereign AI infrastructure designed to offer Canadian corporate and government clients the ability to keep data on Canadian soil. The first Telus sovereign AI factory sold out within months of going into operation. Telus is expanding the capacity at that site in Rimouski and is nearing completion of a second site located in Kamloops.
New CEO
Victor Dodig, the former CEO of CIBC, will become the new top boss at Telus on July 1, 2026. Pundits are wondering if he will cut the dividend to preserve cash flow. This plunge in the share price has driven the dividend yield to just under 10%. That suggests the market is bracing for a cut, especially after BCE trimmed its distribution last year.
Investors should expect a reduction of some sort. When it happens, the stock could actually rally due to the removal of the uncertainty surrounding the distribution. A reduction of 50% would free up significant cash to stabilize the balance sheet while still giving investors a decent yield near 5%.
The bottom line
Investors will need to be patient, but most of the bad news is likely already reflected in the share price. If you have a contrarian investing style, Telus probably deserves to be on your radar at this level.
