Last year’s rising interest rate environment proved rough on Canada’s telecom companies, but 2019 looks to be a different story, says Stan Wong of Scotia Wealth Management, who argues that Telus (Telus Stock Quote, Chart TSX:T) is a good choice for investors looking for a safe and reliable dividend.
2018 was an up-and-down year for Telus, whose share price started dropping in late November of 2017, hitting bottom by early April. The stock rallied a couple of times before finishing the year down 5.0 per cent. It’s been all uphill so far in 2019, however, with the stock up 4.1 per cent year-to-date.
Recession fears combined with general uncertainty in the markets have been pulling investors towards safe havens like the utilities, and Wong claims that interest rates aren’t likely to rise, either, another plus for stocks like Telus.
“I like the telco industry in Canada and I like Telus,” says Wong, director of wealth management and portfolio manager at Scotia Wealth, to BNN Bloomberg on Thursday. “If you go back a year or so when interest rates were expected to go higher and five- and ten-year yields were going to go higher, some of these dividend-paying names like Telus, BCE and Rogers didn’t look so attractive because they have to increase their dividends very quickly. Fast-forward to today, we don’t see interest rates going up very quickly on the five- and ten- year yields, and so names like Telus look pretty good.
Last month, Telus announced its fourth quarter financials which featured Adj. EBITDA of $1.31 billion on revenue of $3.76 billion, a 6.2 per cent year-over-year revenue increase and higher than the consensus estimate of $3.69 billion. Management targeted revenue growth of up to five per cent for 2019 and EBITDA growth of up to six per cent.
Telus’ dividend stands at 4.5 per cent, which puts it ahead of both Rogers Communication at 2.7 per cent and Shaw Communications at 4.4 per cent but behind BCE at 5.4 per cent.
“With Telus, you’re going to see a pretty nice dividend increase over time — I think they’re still projecting a dividend increase of about five or six per cent or seven per cent on a yearly basis over the next few years,” says Wong