Telus is a buy right now, Zachary Curry says

The new pricing strategy by Canada’s big three wireless players hasn’t hurt Telus (Telus Stock Quote, Chart, News TSX:T), which released its quarterly earnings on Thursday.

According to portfolio manager Zachary Curry, Telus’s steady-as-she-goes approach combined with another welcomed dividend increase make the stock a good buy and hold at this point.

“I think that you can stay with Telus,” said Curry, president and portfolio manager at Davis Rea, who spoke to BNN Bloomberg on Thursday. “Their results looked pretty good.”

“The dividend increase is positive, their capital expenditures looked lower, which is a good thing to provide that liquidity. The yield combined with the growth of the company looks pretty good,” he says.

The last of the big three telcos to report this quarter, Telus saw its profit drop 1.6 per cent year-over-year to $440 million for the three months ended September 30, while upping its quarterly dividend to 58.25 cents per share from 56.25 cents, currently amounting to a dividend yield of 4.7 per cent.

Management gave preliminary guidance for 2020 and 2021, calling for capital spending of $2.75 billion in each year.

“These investments reflect the continued expansion of our leading fibre footprint, and positions our converged network for the future capabilities that 5G networks will enable, while supporting free cash flow expansion. Looking further out we remain excited about the future cash flow opportunities as we increasingly near the completion of our generational fibre build, additionally supporting our dividend growth program and commitment to balancing the interests of all TELUS stakeholders,” said Doug French, executive vice-president and CFO, in a press release.

Telus’ third quarter featured operating revenue of $3.7 billion, down from $3.77 billion a year earlier, EBITDA of $1.4 billion, up 6.3 per cent, and adjusted EPS of $0.76 per share. Analysts had been expected earnings of $0.75 per share. The company reported 111,000 net mobile phone additions, which was lower by 10,000 than a year earlier but above the consensus estimate of 109,000.

All three wireless providers made the move earlier this year to offer unlimited data plans for wireless customers, aimed at retaining subscribers while foregoing lucrative overage charges. The switch had an impact on Rogers’ bottom line for the quarter, while BCE and Telus came out less affected, said Curry, who thinks that the loss of cable subscribers over the past few years has seemingly run its course.

“You have Rogers on one end talk about the wireless move to unlimited plans, which didn’t seem to hit BCE and Telus quite as hard,” Curry said.

“Our view on cutting the cord is that it’s not that big of a deal. You’re seeing it with BCE. The landline cutting seems to have slowed down a little bit, and those are real cash cows,” he says. “In Canada, it’s a little bit different, where the companies with the cord also have the internet side, so if you do cut the cord be prepared for your internet pricing to go up and your wireless pricing to go up because it is only the three bigger providers.”

“In our view, you could stick with Telus and keep that dividend,” he said.