Good Day Everyone,
Sorry I haven’t posted in a couple weeks, it’s year end at my work and it’s been busy at home as well with the wedding planning. I’m back though, and it’s time for another Stock of the Month.
Today we’re looking at Telus. Most of you reading this should be familiar with what they do but if you’re not it’s ok, we’ll start from the top as usual.
As you can see, Telus is a telecommunications company that serves most of Canada. They also provide IT services to the medical industry and other outsourcing services as well. I’m a Telus customer myself (through it’s Koodo brand). They are trading at near their all time highs, but still manages to provide a yield over 4% and growing.
I specifically chose this time to recommend Telus because I feel that the valuations in equity markets are a bit over stretched and if you still want exposure to stocks, a high yielding company in a safe reliable industry like Telecommunications might be right for you.
Exhibit 1: Dividends
Attached is the company’s dividend history since 2010. You can see here that they have been growing it consistently every year since then which is a positive sign. They are also targeting further increases through 2019 at 7-10%. I do have concerns about their ability to achieve that dividend growth though. As their policy states, they hope to achieve a dividend payout ratio of 65-75%, but their cash flow statement below shows they were at 89% in 2016 so will they be able to grow profitability enough to sustain the dividend growth? Time will tell, but management has been able to deliver for so many years, that I’m inclined to give them the benefit of the doubt. This is a risk for sure as I’m sure the growth of the dividend is priced into the share price.
Exhibit 2: Operational Statistics/Targets
Here I’ve posted Telus’ operation results in 2016 and targets in 2017. As you can see, they’ve managed to make strides in their network reach, number of customers and revenue per customer. Their ability to achieve continued growth in these key areas will determine whether their stock price and dividend will increase going forward.
I’ll list off some of the risk factors I think could affect an investment in Telus the most. Their full risk discussion is their annual report.
- Downturn in the economy – When money is tight, people will delay upgrading their phones, cut cable, and reduce expenses. This can directly impact Telus’ ability to meet their targets. Although telecommunications is less sensitive to other industries like retail, it is still certainly a risk that needs to be taken seriously not just here, but with all the other investments in your portfolio.
- Increased Competition – New companies have emerged and are attempting to slash prices wireless prices. So far that hasn’t impacted the big 3 companies that much, and all three have their own “discount” brands either through acquisition or internal. It will be important to keep an eye on new competitors that break through and drive down margins in the industry as a whole.
- Overall Stock Market Declines – I mentioned above that I felt overall stock prices are overvalued right now. If there is a broad market decline, that will definitely impact Telus stock.
Bottom Line: Telus has many characteristics that make it a good investment in times of uncertainty, it has a good yield, it operates in an industry with few competitors, and demand for it’s product (wireless connectivity) is growing at a fast pace. Will it make you rich over night? Definitely not, but if this is a core holding in your portfolio, you can sleep easy knowing they won’t just disappear the next day. I hope this post has helped you make an investing decision. As always please feel free to ask me anything or recommend a stock you want looked at for the next Stock of the Month Post.
Disclaimer: I own 1 share of Telus stock that I got through the re-investment program when I used to be a shareholder.
Have a Great Day!
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