Skip to main content

The Globe and Mail

Why I’m happy to hang onto my Telus shares

John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.

This past June, when wireless stocks were plunging on worries that Verizon would soon enter Canada, I vowed to hang on to my Canadian telecom shares.

I'm glad I did.

Story continues below advertisement

Selling out of fear is rarely a wise strategy, and while luck was certainly on my side this time – Verizon has since backed away from Canada – the rebound in telecom stocks underscores why I believe in buy-and-hold investing.

Telus Corp., in particular, has come roaring back. Since bottoming out at $29.82 on June 27, 2013, it has returned 39 per cent, including dividends, closing Tuesday at $40.26. Despite ongoing regulatory risks in the wireless sector, I'm happy to continue holding Telus shares, both personally and in my Strategy Lab model portfolio.

Here's why:

The dividend keeps growing

Telus is one of the most reliable dividend growers around. It's also one of the most predictable: Last year, it pledged to raise its dividend twice a year through 2016, at an annual rate of about 10 per cent.

The latest increase was announced on May 8 along with Telus's strong first-quarter results. The new quarterly dividend of 38 cents a share represents an increase of 5.6 per cent from the previous dividend and growth of 11.8 per cent year over year.

Even though Telus is telegraphing dividend hikes several years into the future, those increases still have to be approved by the board and will depend on the company's earnings and cash flow. But Telus wouldn't have raised investors' expectations unless it was confident it could deliver. And I don't expect any change in the policy under new CEO Joe Natale.

Story continues below advertisement

Leading wireless growth

Telus's postpaid wireless subscriber growth of 48,000 in the first quarter was well ahead of both BCE (34,000) and Rogers (2,000). What's more, Telus's average revenue per user (ARPU) rose 2 per cent to $61.24, also leading the Big Three.

"Momentum in wireless continues to be key to the story, with these results boding well for the unit," CIBC World Markets analyst Robert Bek said in a note.

One reason for Telus's robust showing is its ability to retain subscribers thanks to strong customer service. Its monthly postpaid "churn" rate was just 0.99 per cent, the lowest in North America, according to RBC Dominion Securities analyst Drew McReynolds. In an industry where companies are frequent targets of customers' wrath, Telus's low churn rate sends a positive signal.

TV and Internet are pitching in

Wireless isn't the only growing division. During the quarter, Telus also added 27,000 TV subscribers and 21,000 high-speed Internet customers, more than making up for the loss of residential phone lines as total revenue for the "wireline" segment grew 4.2 per cent to $1.38-billion.

Story continues below advertisement

"Telus is showing impressive results from its wireline performance. Not only is the company achieving the fastest wireline growth in Canada, it is at the same time beginning to show trends of margin improvement," Desjardins Securities analyst Maher Yaghi said in a note.

The company buys back its own shares

In addition to boosting its dividend regularly, Telus has been rewarding investors by buying back its own shares. Through the first four months of 2014, it purchased 5.4 million shares for $202-million and paid dividends of $446-million, for a total cash outlay of $648-million.

Telus isn't risk free, of course. The emergence of a new, deep-pocketed wireless competitor, or a dramatic change in the regulatory framework, could alter the outlook for the industry and stock. But that's a chance I'm willing to take given Telus's growing wireless, Internet and TV businesses and its commitment to rewarding shareholders with dividend hikes.

Disclosure: The author personally owns Telus, BCE and Rogers; he holds Telus and BCE in his Strategy Lab model portfolio.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles as we switch to a new provider. We are behind schedule, but we are still working hard to bring you a new commenting system as soon as possible. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.