Telus is a solid value investment, this investor says

There’s good and bad to the Telus (Telus Stock Quote, Chart TSX:T) story, says Scotia Wealth Management’s Greg Newman, who argues that while the stock isn’t expected to post big gains, this solid name should keep investors happy for the foreseeable future.

Telus posted solid numbers in its fourth quarter financials, delivered last week. The company generated Adjusted EBITDA of $1.31 billion on revenue of $3.76 billion, a 6.2 per cent revenue increase over the same period a year ago and better than the consensus estimate of $3.69 billion.

In his comments, Telus President and CEO Darren Entwistle noted that 2018 made it the eight consecutive year during which the company hit its revenue EBITDA growth targets.

“Through the success of our broadband technology investments, in combination with our culture of putting our customers first, we have demonstrated our ability to consistently drive profitable growth. Our proven strategy, gives us confidence in our 2019 targets announced today, including revenue growth up to five per cent and EBITDA growth up to six per cent,” wrote Entwistle in the press release.

Newman says that despite the lack of share price appreciation over the past couple of years, Telus is still a good name to own.

“The bad is that last quarter they had lower margins and they’re having to give away higher subsidies and there’s more intense competition,” says Newman, senior wealth advisor at Scotia Wealth, in conversation with BNN Bloomberg on Thursday. “But they’re executing well. We model EBITDA growth of eight to ten per cent from 2018 to 2020, 80 per cent payout ratio. Their 2020 capex outlook once they reach 70 to 75 per cent of homes, that should really help them with their costs coming down.”

After climbing to a new high of $49.15 last August, Telus has had its ups and downs, now trading in the $47 range. Of the big four telcos in Canada, Telus’ dividend yield of 4.6 per cent is better than that of Rogers (2.7 per cent) and Shaw Communications (4.4 per cent) but lower than BCE’s (5.5 per cent).

“All in, I think that this is a good name,” says Newman. “It hasn’t done anything for a while. I don’t think that it’s going to lead your portfolio higher but it’s a good name that doesn’t have a whole lot of downside.”