The low interest rate environment has been kind to telco stocks like Telus (Telus News, Stock Quote, Chart TSX:T) and while it’s not cheap, investors should be well-served by the company’s devotion to upping its dividend on a regular basis.
That’s the takeaway from David Burrows of Barometer Capital Management, who spoke to BNN Bloomberg Thursday.
“This has been a dividend play for years. [Telus] has done a really great job of growing their dividend over time. You’re picking up close to a five-per-cent yield,” says Burrows, president of Barometer Capital.
“[But] the defensive sectors are very expensive relative to history and that’s people positioning for what their concerns are, maybe an economic slowdown,” he says. “I think that as a group, telecom has that built into it.”
Telus had an up and down year in 2018 but has picked it up in 2019, sitting up eight per cent for the year, although the stock is currently in the midst of a pullback. Telus and others in the Utilities sector could get a bump if central banks decide to lower interest rates later this year, as some have forecasted, making dividend-paying stocks look that much more attractive for conservative investors compared to the bond market.
“I tend to focus on things that have really good dividend growth going because if we do see a higher low in yields than we saw in 2016 it could get difficult for the big dividend payers,” says Burrows.
“But for what it is, Telus is not going to be a market-leading stock over the next three years but its total return should be decent. You’re going to get your dividend yield and you’re going to get some dividend growth. You just might not get that much capital growth,” he says.
Telus last reported earnings in May, meeting analysts’ consensus predictions with a first quarter profit of $437 million on operating revenue of $3.51 billion.
Earlier this week, Telus announced a new debt offering of $800 million of senior unsecured Series CZ notes with a seven-year maturity, with the proceeds going towards redeeming early $350 million of outstanding notes, for the repayment of outstanding commercial paper and for general corporate purposes.