Is TELUS a Good Stock to Buy After Finally Cutting its Dividend?

TELUS cut its dividend 55%, but still offers you a tasty dividend yield of 6.3%. Is the Canadian blue-chip stock a good buy?

Aditya Raghunath

Aditya Raghunath joined the Motley Fool Canada team in 2019 and has close to seven years of experience in covering publicly-listed companies. With a post-graduate degree in finance, Aditya aims to educate and engage Canadians by writing extensively about growth, dividend, and value stocks. If you are considering investing in the stock market, he recommends reading The Intelligent Investor by Benjamin Graham before taking the plunge.

Published October 19, 3:30 pm EDT

For years, TELUS (TSX: T) was among the safest dividend stocks in Canada. Part of a recession-resistant sector, the telecom giant grew its annual dividend from $0.50 per share in 2010 to $1.67 per share in 2026.

Earlier this year, TELUS cut its dividend by 55%, but despite the lower payout, it still offers a 6.3% yield in October 2026.

Is TELUS a good dividend stock to own right now?

Investor wonders if it's safe to buy stocks now — Source: Getty Images

Why did TELUS cut its dividend by 55%?

The quarterly payout fell from $0.42 to $0.19 per share, and TELUS also ended its dividend reinvestment plan.

The primary reason for the dividend cut was high debt levels. TELUS ended the second quarter with a net debt of 3.5 times adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Management wants to lower the ratio to three times by the end of 2028.

The dividend cut will boost free cash flow by $2.7 billion through 2028, helping it lower long-term debt and reduce interest payments.

TELUS also lowered its 2026 outlook:

Adjusted EBITDA is now expected to fall 2% to 4%, versus the earlier forecast of 2% to 4% growth.
Free cash flow is projected at $1.8 billion, down from $2.5 billion.
Capital spending estimates rose to $2.6 billion from $2.3 billion.
TELUS Digital took a $2.1 billion noncash write-down as AI-automated content moderation worked faster than expected.

BCE made a similar dividend reset roughly 15 months earlier, which indicates that Canadian telecom balance sheets are clearly in a repair phase. The dividend cut will lower the payout ratio to 45% to 60%, below prior estimates of 60% to 75%.

Victor Dodig, the former CIBC CEO, became TELUS CEO on July 1, and Gopi Chande took over as CFO after years running TELUS Digital. Dodig expects free cash flow to grow by at least 10% annually in 2027 and 2028.

Is the telecom business still healthy underneath?

The telecom business, which accounts for 90% of EBITDA, is stable.

Mobile network sales rose 1% year over year to $1.7 billion, the third consecutive quarter of growth. The drop in average revenue per user (ARPU) slowed to less than 0.5%, the fifth straight quarter of improvement. TELUS added just 17,000 net phone customers, and lower immigration has shrunk the pool of new customers for every carrier.

TELUS is optimistic about growth in the fibre segment, with management pointing to about 1 million homes in Ontario and Quebec without fibre, including in places like Kitchener, Waterloo, and Laval.

TELUS stock faces certain risks. TELUS Digital could still disappoint, and it has yet to complete its health asset sales.

So, is TELUS stock a buy now?

TELUS stock is in the midst of a turnaround and must show it can grow free cash flow, especially if interest rates move higher.

A 6.3% dividend yield, coupled with a lower free cash flow ratio, would let the telecom heavyweight reduce debt over the next 24 months.

If Telus reports $2.2 billion in free cash flow in 2028 and trades at 11 times free cash flow, it could gain more than 25% from current levels by the end of 2027. If we adjust for the annual dividend, cumulative returns could be closer to 30%.