A 14% dip in August has shocked many investors and relieved many. This TSX stock is Telus Corporation (TSX:T). The fall came as the telco reported a net loss of $1.8 billion due to a $2.1 billion goodwill impairment of TELUS Digital’s cash-generating unit. Net loss was the least of investors’ concerns as it was a one-time event. What relieved most investors was Telus announcing dividend cuts and prioritizing debt repayment.
T stock has a $21 billion market cap and over $30 billion long-term debt. Such high debt has reduced Telus’s capacity to fund higher capital expenditure and dividends. Telus is still a good business with strong fixed assets that generate sufficient cash flow. However, the 2022–23 interest rate hikes have slowed its growth pace. It is now paying $1.3 billion in annual interest, which equates to 27% of its operating cash flow. Remember, it takes a year or two for interest rates to reflect in income statements.
Just as one needs to reduce load for a car to run efficiently, Telus needs to reduce its debt to bring back efficiency and accelerate growth.
Source: Getty Images
Why I’m still watching this TSX stock
Telus has got a new CEO, Victor Dodig. His early interaction in the second-quarter earnings call shows debt repayment is the priority. Whether or not Dodig can turn around Telus has me curious.
Back in 2021, Bombardier caught my attention when it decided to sell its train-making business to Alstom. Offloading loss-making businesses, streamlining operations, and focusing on segments that it can handle and grow comfortably was the strategy of then-new CEO Eric Martel, who took the helm in April 2020. Bombardier’s debt situation was way worse than Telus’. The business jet maker was on the verge of bankruptcy. Telus is only seeing slow growth amidst price competition and transition to artificial intelligence (AI).
Telus’s new CEO does not seem to shy away from making difficult decisions. He slashed dividends by 55% and postponed the end of the 2% dividend reinvestment plan (DRIP) discount to October 1, 2026, from the end of 2028. This will bring $2.7 billion in cash savings over the next three years, which he plans to use in debt repayment. Hoping the management does not have a change of mind midway and uses the cash savings elsewhere, Telus could see a turnaround.
How much debt reduction will make a difference in Telus’s balance sheet?
Telus has a 4.8% weighted average interest rate on long-term debt, which means for every $1 billion in debt reduction, it can save on average $47.5 million in interest expense. If Telus wants to achieve the 3 times net debt to adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) target by 2028, it has to reduce debt by at least $3.2 billion.
Calculation: In 2025, Telus’s adjusted EBITDA was $7.4 billion, and it guided a 2–4% dip in 2026. Hence, I assumed a 4% dip in 2026 followed by a 2% growth in 2027 and 2028. Net debt has to fall to $22 billion from the current $25.2 billion to achieve a 3 times leverage ratio.
| Telus Debt | 2025 | 2026* | 2027* | 2028* |
| Adjusted EBITDA (million) | $7,354.00 | $7,059.80 | $7,201.00 | $7,345.10 |
| Net Debt (million) | $25,189.00 | $25,189.00 | $25,189.00 | $22,035.20 |
| Net Debt to EBITDA | 3.43 | 3.57 | 3.50 | 3.00 |
A $3.1 billion debt reduction will bring annual interest savings of $147.3 million, leaving more cash for capital expenditure and dividends.
How Telus plans to reduce debt this time
Victor Dodig is considering selling Telus Health and Agriculture. However, his words were vague. “Our goal is to continue to nurture the value in those businesses and focus on those that we believe should be monetized because they’re better off in the hands of another owner and do that in a thoughtful manner, thoughtful meaning taking our time — we are engaged”, said Dodig at the second-quarter 2026 earnings call.
His other priorities are increasing revenue from Telus’ wireless business and allocating capital towards customer base management. He has not ruled out AI investments and will complete sovereign AI data centres in Rimouski and Kenwood.
Investor takeaway
If you have patient capital to wait for a turnaround, Telus might be a good investment as it will see more dips in the short term before rallying significantly.
