It’s never fun to be owning shares of a company after a long-awaited dividend cut announcement. For shares of Telus (TSX: T), the dividend cut was a long time coming, and while there were some glimmers of hope after the firm froze its dividend growth, I do think that it was ultimately the right move to just reduce the payout and move on.
Even if Telus could have kept such a colossal dividend commitment, the turnaround would have probably taken way longer had the extra cash not gone towards other efforts, from paying back some of the debt (that’s vital as interest rates look to climb higher again) to investing in other initiatives to jolt revenues while enhancing operating efficiencies.
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Telus’ dividend cut might actually be a good thing
With the rise of artificial intelligence (AI), there’s certainly room for Telus to find ways to get its growth back on the high track, whether we’re talking about cost savings or new growth pathways, as the AI data centre boom shows no signs of slowing down.
Even after slashing the payout, the yield is still in a pretty generous spot, at least in my very humble opinion. At the time of this writing, the shares yield close to 6.6%. And with shares falling under pressure in the past month, perhaps it won’t take all too long before a 7% yield is hit again. As to whether shares will fall enough to bring back more of the dividend cut talks, though, remains the big question.
Given the state of the balance sheet, I think the payout is on some pretty strong footing right here. So as long as Telus can keep its free cash flows in a steady spot such that the free cash flow payout ratio is south of 60%, I do think that T stock ought to be viewed as a steady income generator again. While I’d normally be a huge fan of a high-yielder like Telus on the way down, I must say that the rise of LEO (Low Earth Orbit) satellite constellations has me just a bit concerned.
The risks might already be well priced in at these depths
I have no idea how long such technologies will really make a big dent in the business models of the terrestrial telecom incumbents. But I do think that the selling pressure, especially in the past few weeks, across the space is something to consider. Just how much of the space connectivity disruptive potential is already priced in?
That’s up for investors to figure out. Personally, I think panic is in the driver’s seat right now, opening a window of opportunity for yield hunters to get more for their invested dollar. Now, it’s never easy to catch a falling knife, especially one that’s already shed close to two-thirds of its value from peak levels (yes, I can’t believe that the dividend darling has fallen that far either!).
Still, if you’re in the market for a nice dividend and think the money saved from the dividend reduction will accelerate the turn in the stock, I wouldn’t be afraid to start nibbling here. Just be cautious because catching a bottom in the name has proven unwise thus far.
