When investors seek dividend stocks to buy, the dividend yield offered is one of the most important aspects they consider. If it boasts double-digit yields, it typically triggers alarm bells in the heads of investors wary of stocks that cannot sustain payouts. This is because ultra-high yields indicate instabilities in the underlying business. It can also mean that the market has priced in significant risk associated with the stock.
However, this is not always the case with high-yielding dividend stocks. Sometimes, the stock market tends to forget what can go right for a stock and focus only on what might have gone wrong. In situations like these, we come across potentially undervalued TSX stocks that trade for less than the intrinsic value they hold.
This might be the case with Telus Corp. (TSX:T), the $23.1 billion market-cap telco stock that has struggled in recent years.
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Telus stock
Telus stock is one of the Big Three telcos in Canada, enjoying a leading position in a highly consolidated industry. Just a few years ago, the Bank of Canada decided to enact interest rate hikes to control the red-hot inflation rates in Canada. While the measure to slow the economy down and cool inflation worked, it came at a high cost to many publicly traded businesses.
Telecom stocks were among those that suffered significantly amid higher key interest rates. Telcos require significant capital to operate and grow, which often leads them to take on debt to fund these activities. Higher interest rates mean more expensive borrowing costs. In turn, the financial pressure weighed heavily on the stock. The result was its share price declining significantly, but its dividend yield became inflated into double-digit territory.
While the price movement might seem alarming, it means investors with an interest in undervalued stocks have an opportunity. Considering that the underlying business itself continues generating billions in cash flow, Telus stock can offer high-yielding returns through dividends and potential capital appreciation in a recovery.
High-yielding dividends
Telus doesn’t just offer telecom services. The company provides wireless, wireline, internet, TV, and several other kinds of communications services to roughly a third of the Canadian market. Its subscription-based business model lets Telus generate recurring revenue. Considering how important the wireless and internet segments have become recently, Telus stock boasts an additional defensive appeal that should make it a more attractive stock to own.
Besides its telecom-related segments, Telus has expanded into other digital services through more subsidiaries, further increasing its revenue-generation potential. Despite the defensive appeal the underlying business has, its balance sheet might be attributed to making investors wary of owning the stock.
Seasoned investors know better and can view it as an opportunity for a bargain on the stock market.
Foolish takeaway
When investing in high-yielding dividend stocks, investors must consider whether the underlying business is fundamentally solid enough to sustain those payouts. I believe that Telus has what it takes to make a recovery on the stock market and soar to greater heights. In 2026, Telus stock has already reported a 19% year-over-year improvement in free cash flow for the first quarter. The company’s subsidiaries are seeking promising growth, and a big uptick might be on the horizon.
I think it might be a good time to invest in its shares and lock in the high-yielding dividends.
