Our Call for Telus to Gain Better Reception

Exactly one year ago, we published a blog titled “Dial Back on Canadian Telco Exposure.” Between the corporate soap opera at Rogers Communications and BCE’s bloated debt amid sluggish growth, we were bearish on the sector. Telus was the sole exception.

Fast-forward 52 weeks, and the numbers speak for themselves. Including dividends, BCE has nosedived 28%; Rogers has plunged 33%. And Telus dropped about 4%.

We first purchased Telus in August 2023. Because it paid a lofty dividend, we expected investors to assign a higher value to the stock once interest rates began to fall. So far, clients are flat on the investment, but we continue to hold the stock.

Telus has raised its dividend by about 7% annually for the past decade. At the same time, it has poured money into a massive 12-year fibre-optic network buildout, swapping out old copper wiring. Now that this costly project is winding down, costs are set to drop significantly, and free cash flow is primed to surge. Come May, we expect a renewed commitment to return even more cash to shareholders.

However, instead of paying out higher dividends, employing a large share buyback program is a better allocation of Telus’s cash flow.

Investors come in all flavors—some chase earnings growth, others crave income, and plenty just watch the charts. Telus already has the income crowd locked down with a 7.3% dividend yield at today’s price. But a stock buyback would reduce the share count, boost earnings per share, and attract more growth-focused investors.

Don’t expect much revenue growth beyond a couple percentage points. The price war may have cooled, but last quarter’s ARPU (average revenue per user) still slid 3.6%. Meanwhile, Canada’s immigration targets—a key driver of new telecom subscribers—are being cut by 21% in 2025, 24% in 2026, and 27% in 2027. This means fewer new customers than previously expected.

Proceeds from monetizing assets can also be used to repurchase Telus’s shares.

U.S. telecom giants figured out long ago that their cell towers were a lucrative asset class. Telus could follow suit, selling its stake in the tower network it co-owns with Bell and leasing back the space it needs. Beyond towers, Telus also holds a significant real estate portfolio that could be monetized. Combined, these moves could generate $2-3 billion, enough to repurchase 6-9% of its stock.

Through a large share repurchase program, Telus’s flat share price could see meaningful appreciation, unlocking strong shareholder value.

-written by Jeff Pollock