Canaccord Genuity analyst Dvai Ghose likes Telus Corp. (NYSE:TU), the diversified telecommunications firm operating in Canada’s western provinces. Ghose is an analyst worth listening to. He was one of StarMine’s top 10 stock pickers last year with his recommendations in the telecom sector outperforming by 18.1%.
One advantage for the company is it faces much less wireless competition. Start-ups are concentrated in central Canada and cable rival Shaw Communications (NYSE:SJR) is still a year away from launching a wireless line. Telus is busy ramping up Internet Protocol Television and is picking up TV market share from Shaw. Whereas competitor BCE Inc. (NYSE:BCE) faces a great deal of wireless competition thanks to new start-up firms and the wireless initiatives of Rogers Communications (NYSE:RCI) and Vidéotron.
Telus pays a dividend yielding 4.1%. This is not as high as BCE’s 5.5% dividend, but there is significant room for dividend growth since Telus pays out less than 50% of free cash flow in dividends.
One caveat is that the spread in Telus’ dividend over 10-year Government of Canada bonds has narrowed steadily to 100 basis points from 300 over the past two years. BCE’s spread remained around 200 basis points. For the most part, could this mean Telus’ fundamentals have been discounted by the market?