Telus: Dividend Stock Analysis

| About: TELUS Corporation (TU)

For the month of November, I wanted to take a look at another great Canadian Dividend Stock. I’ve already told you how much I love Canadian Banks (even if you are a US investor). Today, I’ll tell you why Canadian Telecoms should also be part of your portfolio.

Telus (NYSE:TU) Description

Telus is one of the telecommunications leaders in Canada. They have been making extensive investments in both Wireless and Wireline platforms. Telus offers residential phone, internet, TV and mobile phone services. Back in 2008, Telus also bought Emergis, a leading electronic healthcare solutions provider and then created Telus health Solutions. With an aging population, healthcare is definitely a great sector for a telecom. Considering the number of wireless subscribers, Telus is the 3rd largest provider in Canada. Interesting enough, T is gets 49% of its revenue from Wireline and 51% from Wireless.

Telus Stock Graph

TSE: TClick to enlarge

Telus Metrics

Ticker T CN Equity
Name TELUS Corp
Dividend Metrics
Current Dividend Yield 4.25
5 year Dividend Growth 14.34
1 year Dividend Growth 10.26
Company Metrics
Sales Growth (1 year) 1.8
Sales Growth (5 year) 3.52
Earnings growth 3.88
P/E ratio 14.68
Margins growth N/A
Payout ratio 62.09
Return on Equity 13.14
Debt to Capital Ratio 0.41
Price 54.62
Trading Volume 942587.7
Click to enlarge

Telus Upcoming opportunities and dangers

Canadian banks and telecoms share one point in common and it is with regards to competition; they don’t have many competitors. The heavy start up costs mixed with solid existing players make it very difficult for any firm to enter. Telus’ biggest competitors are Bell (NYSE:BCE), Shaw Communications (NYSE:SJR) and Rogers Communications (NYSE:RCI).

However, a small number of competitors in a technology field requires important investments to keep one's market share. In 2009, Telus partnered with Bell to develop the HSPA + network. This ensured both TU and BCE a higher penetration in the smartphone industries. Since kids as young as 12 are now looking to get an iPhone, I can see that both companies made a smart move.

Telus strongholds (BC and Alberta) have been spared from heavy competition so far, which enabled Telus to concentrate on expanding and battling on their competitor’s playgrounds (like Ontario and Quebec). However, Shaw is expected to attack Western Canada within a few years.

Finally, Telus EPS was reduced since the 2008 crisis (from $3.79 in 2007 to $3.52 in 2008, $3.14 in 2009) but is deemed to go back on an uptrend in the upcoming years ($3.23 in 2010, $3.85 in 2011 (estimated) and up to $4.15 in 2012 according to financial analysts).

Final Thoughts on Telus

As you can see, Telus won’t beat any growth records in 2012 since it is evolving in a highly competitive and mature market. However, its solid financial situation combined with the management team’s will to increase its dividend by 10% in 2012 and 2013 makes it an interesting bid. Telus dividend payout ratio enables it to both distribute a higher dividend and massively invest in R&D in order to keep its market share and remain a leader in its industry.

This is the main reason why I’ve added Telus to my dividend holdings. Since I bought it this summer, the stock is stable (no loss, no gain) but I’m entitled to get a 4% dividend yield.