Telus stocks have delivered solid capital gains and steady dividend increases, and John Heinzl is expecting more of the same in the coming years.© Chris Wattie / Reuters
John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.
My family has always been a bit behind the technology curve.
For instance, until a few weeks ago the two adults and two kids in our household shared a single cellphone. Worse, it was an old flip phone that I would hide in embarrassment whenever I had to make a call. I'm pretty sure it sent texts, too, but I never learned how.
Well, we're still sharing mobile devices, but now we have two shiny new smartphones. As a Telus shareholder, I'm pleased to report that one of the devices is on a prepaid plan with Koodo (a Telus subsidiary). We've been happy with the service so far; the guy at the Koodo store even helped me set it up and showed me where the on-off button is.
I've been a fan of Telus for years as an investor, and my experience as a customer has only reinforced my loyalty. The stock – which I also hold in my Strategy Lab model dividend portfolio – has delivered solid capital gains and steady dividend increases, and I'm expecting more of the same in the coming years. Here's why.
Dividend growth to call home about
Telus is one of the most predictable dividend growers around. On May 7, the company raised its dividend by 5 per cent, continuing a pattern of semi-annual increases – typically announced in May and October and totalling about 10 per cent annually. Telus has pledged to continue its semi-annual hikes through 2016 – subject to board approval – but analyst Maher Yaghi of Desjardins Securities expects the increases to extend through 2017 "barring any significant changes in current regulation or competitive intensity," he said in a note. In addition to a growing dividend, the stock has an attractive yield of 4 per cent.
Wireless revenues rising
Apparently, these smartphone things are really catching on. In the first quarter, Telus's operating revenue rose 4.6 per cent to $3.03-billion and net income jumped 10.1 per cent to $415-million or 68 cents a share. Contributing to the gains was a 6.4-per-cent increase in wireless network revenue to $1.54-billion as the company signed up a net 37,000 postpaid wireless subscribers – highest among the Big Three. (Postpaid customers generally spend more than prepaid cheapskates like me.) Regulatory changes are always a potential threat in the wireless space. But with smartphone users choosing more expensive rate plans and consuming more data to watch video and play games on their devices, Telus's wireless revenues will almost certainly continue to rise at a steady pace.
Internet and TV are helping, too
Telus lost 25,000 phone land lines in the quarter. That's the bad news. The good news is that it more than made up for those losses by adding 23,000 high-speed Internet customers and 21,000 TV subscribers. Bundling services together has helped Telus increase the number of Internet customers who also subscribe to TV services. Year-over-year, high-speed connections rose 5.8 per cent and TV subscribers jumped 11 per cent, while total revenue in the wireline segment grew by 1.2 per cent to $1.36-billion.
Customers actually like Telus
Canadians love to complain about their telecom providers: They're too expensive; the service is unreliable; there are too many hidden fees. But thanks to a culture that emphasizes customer service, Telus has managed to avoid much of the scorn directed at its competitors. In the first quarter, its monthly postpaid wireless churn rate – a measure of how many subscribers left the company – was 0.91 per cent, which Telus says is the lowest in North America. What's more, in the six months ended Jan. 31 Telus accounted for just 4.4 per cent of complaints received by the Commissioner for Complaints for Telecommunications Services, while Big Three rivals Bell and Rogers together accounted for more than half. (Disclosures: I also own shares of Bell's parent BCE, both personally and in my Strategy Lab portfolio; BCE owns 15 per cent of The Globe and Mail).
Bountiful buybacks
Unlike some companies that buy back their own shares at inflated levels, Telus has created shareholder value by snapping up its own stock at attractive prices. Since 2004, it has bought back 171 million shares for about $4.6-billion, paying an average price of $26.88 a share (Telus closed Tuesday at $41.61, down 77 cents). Combined with $6.9-billion in dividends paid over the same period, the company has returned more than $11.5-billion or $19 a share to investors, executive chairman Darren Entwistle said on the first-quarter conference call. In 2015 alone, Telus has paid $176.7-million to purchase and cancel 4.3 million shares.
Shares are rarely on sale
Because of Telus's steady operating performance, the shares command a premium relative to peers. Based on 2015 estimates, Telus trades at a price-to-earnings multiple of 16.1, compared with 15.8 for BCE and 14.9 for Rogers. But I don't mind paying up for a company that generates such reliable earnings and dividend growth. Now that my family has emerged from the technological dark ages, I'm going to need Telus's growing dividend to help pay for our rising cellphone bills.