A Canadian Dividend Pick Down 28%: A Forever Hold

Despite a significant downturn and inflated dividend yield, this TSX telco stock might be an excellent pick for your self-directed portfolio for the long haul.

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Key Points
  • Telus (TSX:T) trades around $16, roughly 28% below its 52‑week high and yields about 10.15% on a $0.4184 quarterly dividend, prompting questions about sustainability.
  • The drop largely reflects higher interest rates and heavy capital spending weighing on the balance sheet, yet Telus’s core telecom business and diversified units (Telus Digital, Health, Agriculture) still generate recurring revenue and growth potential.
  • Foolish takeaway: with management focused on debt reduction and rates easing, the inflated yield looks more price‑driven than fundamentally broken — it can be a long‑term, income play for diversified investors, but avoid overconcentration given execution and macro risks.

Canada has a largely consolidated telecom industry, with three big names dominating almost the entire market share in the country. In an industry with high barriers to entry, Canada’s blue-chip stocks are traditionally known for reliable dividends supported by stable business models.

Yet, the price movements of one of the biggest Canadian telcos is suggesting a bleaker picture. What was once a popular holding for investors is trading at a significant discount from its 52-week high. Newer investors might be wondering whether it can be a good long-term holding.

As of this writing, Telus Corp. (TSX: T) trades for around $16 per share, down by around 28% from its 52-week high. Considering such a significant downturn, worrying about the sustainability of its double-digit-yielding dividends is fair.

Let’s see whether this stock is truly a forever hold for your self-directed investment portfolio.

voice-recognition-talking-to-a-smartphone

Source: Getty Images

Telus

Telus is among the biggest telcos in Canada, providing telecom services across wireless, wireline, TV, and internet to subscribers nationwide. Its core telecom business is just one of the reasons it can be a good investment.

Telus has also been growing the number of businesses under its belt, diversifying into other industries through Telus Digital, Telus Agriculture & Consumer Goods, and Telus Health. Another big reason to consider investing in it is its $0.42 per share quarterly dividend, which translates into a massive 10.2% dividend yield.

Why is the stock down by so much?

Telus has an excellent business model that generates recurring revenue in a defensive industry. Despite the ability to generate stable income and run several other businesses, it begs to ask why the stock is so far below its 52-week high when the broader market is going through a bull rally.

Several factors can be attributed to the downturn. The high-interest-rate environment in the last few years in Canada is one of the biggest causes. Telcos are capital-intensive businesses requiring massive investments to keep things running. As interest rates began climbing, Telus’ balance sheet felt the pressure of that weight. It led to many investors becoming wary of the stock and preferring higher-growth stocks.

With interest rates falling, an improvement in its balance sheet will come. Now, the dividends it offers are alarming for new investors. Typically, such high-yielding dividends are concerning. The underlying business must be capable of sustaining such payouts to make the stock a worthwhile long-term investment.

The inflated dividends seem more of a result of short-term concerns than long-term issues with the stock and the underlying business. Telus’ core business continues to grow, and so do its various digital services arms.

The company is also focusing on lowering its debts to more manageable levels. While that means compromising on its dividend hikes, the move can ultimately pave the way for more dividend growth in the years to come.

Foolish takeaway

Investors seeking high-yielding dividends for the long run might want to consider getting in on the game while share prices still drag behind the rest of the market. It’s important to remember that no stock is risk-free. When investing in the stock, I would advise being cautious about going overboard. Over the long run, it can be the most impactful part of a larger and otherwise diversified portfolio .

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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