BCE or Telus: Which TSX Dividend Stock Is a Better Buy Now?

BCE (TSX:BCE) and Telus Corporation (TSX:T), the Canadian telecom giants once known for their dividends, underwent major restructuring in the past two years. Earlier, it was price competition that made them cut dividends or pause dividend growth. The prices are normalizing, with average revenue per user decline slowing to less than 1% in the first quarter of 2026.

So what is stopping dividend growth now?

The shift to capital-intensive artificial intelligence (AI) infrastructure. Both have committed billions to AI data centre infrastructure.

What does the new capital expenditure mean for dividends?

BCE’s capital allocation and dividends

Until February, BCE was on track to deleverage its balance sheet, reduce capital intensity, and move fibre infrastructure investment to the United States. However, in the earnings of the first quarter of 2026, it announced $1.3 billion in incremental capital spending on the 300 megawatt purpose-built AI data centre in Saskatchewan. This data centre is expected to be completed in 2027 and contribute approximately $500 million in revenue and over $250 million in free cash flow (FCF) at full run rate. That makes up for BCE’s 2% revenue and 7.5% FCF.

The data centre investment is in line with BCE’s move to high-growth sectors. BCE slashed its dividend by 56% in 2025, which eased the pressure on FCF to pay dividends. However, the next two years could see significant investment in AI fabric, US fibre, and other high-growth businesses.

Higher capex directly impacts FCF and reduces money available for dividends, delaying dividend growth. BCE is prioritizing its capital allocation to deleverage its balance sheet, fund capex, and pay sustainable dividends. While dividends may not be the most lucrative aspect of the stock for the next two years, capital appreciation will be.

BCE stock fell 6.6% between June 12 and 22, when most AI stocks declined after SpaceX debuted on the Nasdaq. Competition in the AI space could slow BCE’s stock price rally or boost it if investors prioritize profits over loss-making growth of pure-play AI stocks.

Telus’s capital allocation and dividends

Telus has also changed its course from reducing capital intensity to earmarking more than $66 billion in AI infrastructure over the next five years. The AI plan was announced on May 19, and its stock fell over 6.5% between June 10 and 24 since the SpaceX IPO. Unlike BCE, Telus stock did not see any major stock price appreciation, nor did the company slash dividends. But the AI investment will likely alter the company’s three-year capital allocation strategy. The target of 10% growth in FCF and reducing net debt to 3 times its Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by 2028 may face a delay.

The high capex requirement of AI infrastructure is difficult to meet when 112% of its FCF is going towards dividend payments. Around 75% of FCF is being used in cash dividends, and the remaining 37% on the dividend reinvestment plan. Investors should not rule out the possibility of a dividend cut. This cut should have happened before, but the change in chief financial officer probably stalled the decision.

Even if Telus halves its dividends, it will only save $1 billion, and the capex of $66 billion over five years comes to $13.2 billion per year. Telus might fund this capital through a partnership with deep-pocketed investors, considering it already has $26 billion in long-term debt on its balance sheet.

BCE vs. Telus: Which TSX dividend stock is a better buy now?

After the recent AI dip, BCE and Telus have dividend yields of 5.4% and 10.4%, respectively. Although Telus has a higher yield, it also carries the highest risk of a dividend cut. Considering the share price, valuations of BCE are more attractive given that its Bell Media and Communications continued to generate higher margins and cash flows.

BCE is a better buy than Telus for dividends, as the uncertainty around the dividend cut is over. You could also explore Cogeco Communications for dividends with its 6.3% dividend yield, 6–7% annual dividend growth, and 30% payout ratio.