A Telecom Giant With a 4.4% Yield to Buy and Hold Forever
The Motley Fool
Published May 17, 2019 08:00
Equity markets have been flying high since the beginning of the year. The S&P/TSX Composite Index, for instance, boasts a year-to-date return that is slightly above 13% at writing. This compares very favourably to last year’s negative return, though there are still about six months to go in the year.
By contrast, Telus (TSX:T)(NYSE:TU) has a year-to-date return of just under 9%. Despite its share price growing at a slower pace than the average in what has been a bit of a bear market, I think Telus is an interesting investment option; here is why.
A great option for risk-averse investors Admittedly, Telus isn’t a particularly good option for growth investors. It isn’t likely that the firm’s stock price will outpace the market in terms of growth. However, Telus is also less likely to incur catastrophic losses. The company’s beta — an indicator of risk and volatility — is consistently under 0.60.
In other words, Telus is generally less volatile than the market (which has a beta of one by definition). By way of comparison, while the average return for the one-year return for the S&P/TSX Composite index is 4.5%, Telus’s one-year return is 12.5%. Clearly, the Vancouver-based firm did not stumble as much as global equity markets did late last year.
A good dividend stock Telus does not boast decades of uninterrupted dividend increases. The telecom firm has decreased its dividend payments once over the past 10 years. But while Telus might not compare favourably to Dividend Aristocrats, there are definitely worse options .
The firm currently offers a dividend yield of 4.42% with a payout ratio just under 80%. Last time Telus cut its dividend payments was in 2013. Since then, the firm’s quarterly dividend payouts have increased by 60%, which averages out to an increase of 10% per year. By almost all accounts, Telus looks to be an attractive option for income-oriented investors.
Telus is here to stay Telus is one of three Canadian firms that share about 90% of the domestic wireless market. It would be very difficult for any firm to seriously disrupt this landscape, though Shaw Communications has been giving it a good shot recently .
Still, Telus offers superior wireless services in part thanks to its network sharing agreement with BCE. Though many customers are willing to forego speed and reliability for lower prices, many others are more than willing to pay the premium Telus charges for its wireless services.
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Further, the firm’s wireline segment has been getting a head of steam. Telus is still in the process of switching its wireline service to the superior (faster) fibre to the home (FTTH). This new network should allow Telus to incur lower costs while charging higher prices to customers.
In short, Telus is currently one of the undisputed leaders in the Canadian telecom industry and compares favourably to most of its peers when it comes to both its wireless and wireline services.
Investor takeaway Telus isn’t a stock for everyone. But for those looking for a low-volatility stock with reliable dividends to buy and hold for many years, look no further than Telus.
Fool contributor Prosper Bakiny has no position in any of the stocks mentioned.
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This Article Was First Published on The Motley Fool
Written By: The Motley Fool
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