Dividend stocks are powerful tools for long-term wealth creation, allowing investors to benefit from both capital appreciation and a steady stream of dividend income. Reinvesting those dividends can further accelerate portfolio growth through compounding. While the Canadian equity markets have rebounded sharply from their March lows, a handful of quality dividend stocks continue to trade well below their 52-week highs.
One such company is Telus (TSX:T), one of Canada’s three largest telecommunications providers. The company’s weaker-than-expected second-quarter results, reduced 2026 financial guidance, and 55% cut to its quarterly dividend to preserve financial flexibility and strengthen its balance sheet weighed heavily on investor sentiment, sending the stock down 11.3% on Friday following its earnings release. Amid that sharp decline, Telus now trades more than 42% below its 52-week high.
With the sharp pullback raising questions about its long-term outlook, let’s take a closer look at Telus’s second-quarter performance, valuation, and growth prospects to determine whether the recent decline has created an attractive buying opportunity. Let’s first look at its first-quarter performance.
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Telus’s second-quarter performance
Telus’s consolidated operating revenues and other income in the second quarter came in at $4.9 billion, down 3% from the prior-year period, as lower service revenue and weaker mobile equipment sales weighed on its topline. It acknowledged a non-cash impairment charge of $2.1 billion related to TELUS Digital, which drove a sharp increase in reported net losses. As a result, Telus posted a net loss of $1.8 billion, compared with a net loss of $245 million in the same quarter last year.
Excluding one-time and special items, the company’s underlying performance was more resilient. Adjusted net income declined 25.7% year over year to $254 million, while adjusted earnings per share (EPS) fell 27.3% to $0.16. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) also decreased 1.9% from the prior-year quarter to $1.8 billion.
Despite weaker earnings, Telus delivered solid cash flow. Cash provided by operating activities rose 15.1% year over year to $1.3 billion, while free cash flow increased 1.9% to $545 million, supported by disciplined capital spending and ongoing operational efficiencies. Now, let’s look at its growth prospects.
Telus’s growth prospects
Rapid automation, the continued expansion of remote work and learning, and the growth of e-commerce continue to support long-term demand for high-speed connectivity, positioning Telus to benefit from these structural trends. To capitalize on this opportunity, the company invested $678 million during the second quarter to expand and enhance its network infrastructure. As a result, its 5G network now covers 92% of Canada’s population.
Looking ahead, Telus plans to invest approximately $66 billion over the next five years to further strengthen its 5G and broadband infrastructure, with a focus on projects that generate returns above its cost of capital. At the same time, management is advancing a cost transformation program centred on technology adoption, eliminating redundancies, and improving operational efficiency to enhance long-term profitability.
Alongside these investments, Telus is prioritizing balance-sheet strength and a more sustainable capital allocation framework. The company reduced its quarterly dividend by 55% to $0.19 per share, a move that could generate approximately $2.7 billion in cumulative cash savings through 2028. Management intends to use these savings primarily to reduce leverage, targeting a net debt-to-adjusted EBITDA ratio of 3 times by the end of 2028. The dividend reduction could lower the free cash flow payout ratio to 45%–60% from the current 60%–75%, improving the sustainability of future shareholder returns.
However, these strategic initiatives come with near-term headwinds. Reflecting the challenging operating environment and its renewed focus on strengthening the balance sheet, management lowered its 2026 guidance. The company now expects revenue to decline by 2% or remain flat this year, while consolidated adjusted EBITDA could decline by 2% to 4%. It also forecasts free cash flow of approximately $1.8 billion, well below its previous guidance of $2.5 billion.
Investors’ takeaway
Following the recent sell-off, T stock trades at a reasonable valuation, with a forward price-to-sales ratio of 1 and a next-12-month price-to-earnings multiple of 14.1. Despite the recent dividend reduction, the stock still offers an attractive forward dividend yield of 5.6%.
While the company’s near-term outlook remains challenging, its long history of rewarding shareholders, favourable long-term industry tailwinds, ongoing network investments, and initiatives to strengthen its balance sheet position it well for a stronger recovery over time. Given its compelling valuation and healthy dividend yield, I believe Telus stock offers an attractive buying opportunity for long-term income-focused investors who can look beyond the current headwinds.
