Canadian telecom investors received a painful blow following TELUS’s (TSX:T) second-quarter (Q2 2026) earnings report on July 31. The stock has slid by 11.6% since the announcement, bringing its year-to-date decline to 21.1%. The main culprit? A 55.2% dividend cut executed by newly installed CEO Victor Dodig and CFO Gopi Chande, who assumed leadership on July 1, 2026. The payout reduction stings passive income investors while resetting the yield from double digits to a sustainable 5.6% annually.
While leaning towards buying TELUS stock for a multi-year investment horizon, I speculated on a 50% dividend cut earlier in July, and expected a dividend reset to about 5.7% to bring the yield within competitor ranges while paving way for faster deleveraging and new growth investments. A 55.2% slash was a little bit deeper, and the 11% drop in T stock following the dividend cut could be overdone. Is the dramatic sell-off a market overreaction, a warning sign to stay away, or rare buying opportunity? Let’s explore.
Source: Getty Images
The strategy behind TELUS’s financial reset
Dividend cuts are rarely welcomed, but context is key. TELUS’s 55.2% payout cut may generate roughly $2.7 billion in cumulative cash savings through 2028. Management plans to direct this cash toward deleveraging, aiming to lower TELUS’s key leverage ratio, its Net-Debt to Adjusted EBITDA ratio, from 3.5 at quarter-end to a target of 3 by the end of 2028.
Operational results for the second quarter added to investor anxiety. Operating revenue fell 3% during the quarter, and management updated its full-year 2026 guidance to project flat-to-negative 2% service revenue growth alongside a 2% to 4% decline in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
Compounding the market’s disappointment, TELUS took a $2.1 billion goodwill impairment charge on its key growth segment, TELUS Digital, to reflect lower expected cash flows from prior acquisitions.
However, core operations proved resilient. Mobile network revenue rose 1% despite Average Revenue Per User (ARPU) dropping 0.4% to $56.36. Cash flow performance also remained positive, with cash flow from operations increasing 15% to $1.3 billion, while quarterly free cash flow rose 2% to $545 million.
A resilient cash flow profile retains hope for long-term oriented investors, as it provides the dry powder for management to pounce on revenue-enhancing opportunities that may usher in a new positive growth era as the artificial intelligence (AI) promise continues to hold.
New value drivers: Sovereign AI and real estate
While core telecommunications business lines remain the central drivers for revenue and cash flow performance, TELUS is executing strategic pivots in real estate and sovereign AI computing that may build predictable, long-term value.
TELUS is converting empty copper switching centers into residential real estate. Beginning with a 195-unit project in Nanaimo, TELUS aims to develop over 4,000 purpose-built units by 2032. Because TELUS already owns the land, land acquisition costs are zero. This portfolio could generate $100 million to $120 million in recurring, high-margin rental revenue annually. Furthermore, every unit comes pre-wired with PureFibre and TELUS SmartHome Automation, securing a small but captive, low-churn subscriber base.
Recently,TELUS joined an AI consortium and is investing in sovereign AI data centres to meet the growing need for Canadian AI infrastructure.
A slashed dividend makes capital investments in sovereign AI data centres easier to execute without straining the balance sheet.
Is TELUS stock a Buy, Sell, or Hold?
Given an ongoing strategic reset, a cost saving operational re-organization, and a price reset that offers a 5.6% yield from safer payouts, TELUS stock is a much cheaper and better Buy than it was a month ago.
TELUS stock currently trades at a forward P/E of 18.6 following a heavy beating, cheaper compared to a five-year average multiple of 22. While 2026 profitability will be lower than 2025, the dividend reset and non-core cash generation provide a solid foundation for a multi-year strategic turnaround.
As CEO Victor Dodig recently emphasized, these strategic changes to cash deployment are designed to compound into lasting value for shareholders. With significant downside risk already priced into the heavily discounted valuation, the potential upside over a five-year investment horizon, supported by a safer yield, potentially outweighs the short-term pain.
