Contrary to what the market seems to be saying, Telus Corporation (TSX: T) still has a lot going for it. But with a 55% dividend cut and 65% drop in Telus’ stock price, investors are understandably skeptical.
I bought Telus stock at the end of 2025, after it had fallen a lot and at which time I believed it was looking undervalued. Yet, the stock kept falling. As they say, it’s hard to catch a falling knife, so my timing was not ideal. But here’s why I’m still holding on to Telus stock – despite its 55% dividend cut. And despite a challenging telecom market.
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Highly valuable telecom assets
To start off, the fact is that Telus’ telecom assets are extremely valuable. And I don’t think the market is recognizing that in Telus’ stock price.
The sector is vital to the economy. It’s vital given the country’s need to modernize to remain competitive. And it’s essential as the growth of data and artificial intelligence, or AI, is accelerating. Yet the industry has been in a state of disarray. Government regulations that have opened it up to competition have driven prices down, and made it difficult for telecom companies to have healthy returns and make the necessary investments in this capital-intensive business.
In response to all of this, Telus is transforming its strategy and its business. The telecom business represents 98% of Telus’ earnings. While this business has had to deal with a lot of pressure in the last few years, today, it’s a more stable market than in the first quarter. In fact, there’s greater discipline and stability in prepaid pricing, which is good.
New management will focus on this gem of a business in a few ways. Simply put, it will be streamlined, with a focus on customer service, profitability, and return on capital.
Divesting from non-core businesses
In the next 12 months, Telus’ management will be simplifying its business. The telecom business is Telus’ core business along with the artificial intelligence data infrastructure assets that go with it. As such, Telus will be looking to divest of its non-core businesses, such as Telus Health.
The company will use the cash infusion from these divestitures to reduce debt and provide flexibility for future growth opportunities and capital investments.
Telus’ dividend is still attractive
For new investors and existing ones alike, Telus’ dividend is still attractive at this time. The 6.3% dividend yield has been taken down a notch, but it’s in a much better place today. It is better covered by earnings and cash flow. It leaves room for Telus to reduce its stubbornly high debt levels. And it derisks the company.
The cut frees up $2.7 billion in cash between now and 2028 and it allows Telus to hit its leverage target of 3 times by 2028. Once this is achieved, the company can once again think about increasing its dividend and/or share buybacks.
The bottom line
Telus stock is not the safe and secure telecom stock that many of us had gotten used to in the past. Yet, it’s an opportunity to buy into valuable telecom assets and artificial intelligence infrastructure. These are assets that are taking Canadians into the future, and we can gain exposure at a really inexpensive valuation. The possibility for a recovery of this essential business, and therefore Telus’ stock price, is real.
