Telus (TSX:T) recently slashed its dividend by 55%. Contrarian investors who have been on the sidelines waiting for the reduction to be announced are now wondering if Telus is finally oversold and attractive to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
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Telus share price
Telus trades near $13.25 per share at the time of writing. The stock is down from $34 in 2022 and now sits at a level not seen since 2011.
The downward slide over the past few years can be attributed to a number of factors.
Soaring interest rates in 2022 and 2023 triggered the first leg of the decline. The Bank of Canada and the U.S. Federal Reserve aggressively increased rates to get inflation under control. This immediately drove up debt expenses on variable-rate loans and led to a spike in bond yields, making it more expensive for companies to raise cash for capital projects or to replace bonds that were maturing.
Telus has a lot of debt. This is normal for communications companies that need to spend billions of dollars on wireline and wireless network expansion and upgrades to meet customer demand for communication services. The steep spike in rates over such a short period of time, however, cut into profits and reduced cash available for dividends and debt repayment.
Rate cuts by the central banks in 2024 and 2025 led to a rebound in other capital-intensive sectors, including pipelines and utilities, but Telus and its communication peers missed the party. Fewer immigrants to Canada, price wars on mobile services, and declining revenue at Telus Digital (Telus International) all combined to put more pressure on the stock.
As the dividend yield pushed north of 10%, markets anticipated a cut last year. BCE (TSX:BCE) had already cut its dividend by more than 50%. The reduction finally happened on July 31, shortly after the new CEO, Victor Dodig, took over the top job at Telus.
Risks
Several of the challenges that caused the pain in the past few years are still in place. Interest rates have dropped, but are still high. Rising bond yields indicate market expectations for possible rate hikes in the next 12 months, as inflation remains sticky.
Price wars have eased, but the ongoing reduction in new entrants to Canada, particularly students, is putting pressure on sales of new devices and service subscriptions, so companies are fighting for a smaller pool of customers.
Telus took Telus Digital private last year, but booked a $2.1 billion writedown on the business when it reported Q2 2026 results.
Opportunity
Telus is investing in AI data centres to meet rising demand from government and corporate clients who want to ensure data sovereignty. At the same time, Telus Health and another subsidiary, Telus Agriculture and Consumer Goods, are growing and could be monetized to reduce the debt load.
Most of the bad news is probably already priced into the stock at this point and there shouldn’t be any major negative surprises in the near term. The new CEO decided to get the dividend cut and the large Telus Digital charge out of the way right at the start of his tenure. He can now focus on putting the turnaround plan into action.
Time to buy?
The reduced dividend payment should be safe and currently provides a yield of 5.7%. Income investors might want to start nibbling at this level.
Those who are more focused on capital gains will need to be patient. Decent upside over the long haul is possible, but Telus remains a contrarian pick and there could be more pain on the way before things start to improve.
