Previously, TELUS was viewed as a stable investment within the telecom sector, with expectations of consistent dividend growth. However, recent developments have shifted this outlook significantly.
As of now, TELUS closed at CA$17.85, reflecting a modest one-day return of 0.17% but a concerning decline of 3.9% over the past month. Analysts have reassessed the company’s fair value estimate at CA$21.38, indicating that it is currently undervalued by 16.5%.
One of the most pressing concerns for TELUS is the potential for a dividend cut of at least 30%. This comes in light of share dilution, with approximately 339 million additional shares issued since 2019, leading to an extra $567 million annually in dividends.
Currently, TELUS boasts a dividend yield of 9.4%, but experts warn that the company’s payout ratio could remain above 100% for several years, raising alarms about its financial sustainability.
Jerome Dubreuil, an analyst at Desjardins Group, stated, “Telus does not have to cut its dividend … but it should,” highlighting the precarious position the company finds itself in. He further noted that share dilution has been a persistent issue for TELUS over the past decade.
In contrast, other telecom companies like BCE and Rogers Communications have managed to maintain more stable dividend policies, putting additional pressure on TELUS to address its financial strategy.
The ongoing situation raises questions about TELUS’s future growth expectations and their impact on stock price. Details remain unconfirmed regarding how the company will navigate these challenges.
As TELUS pauses its dividend growth plan since December 2022, investors are left to ponder the long-term implications of these financial adjustments. The market is closely watching how TELUS will respond to these pressures in the coming months.
