Telus stock named to TD’s “Best Ideas for 2025” list

TD Cowen analyst Vince Valentini likes what he sees from Telus (Telus Stock Quote, Chart, News, Analysts, Financials TSX:T).

As reported by the Globe and Mail December 6, the analyst, in a research update to clients maintained his “Buy” rating and price target of $25.00 on T and named he stock to the firm’s “Best Ideas for 2025” list. He believes the current environment is set up for Telus to succeed.

““TELUS is emerging as the only large cap name in Canadian telecom with both a yield at least 350 basis point above 10-year bonds, and dividend growth,” he wrote. “If/when the BoC keeps cutting rates, we believe T shares will be coveted.”

Valenti says the stock compares favourably to its Canadian telco peers, offering both dividend and growth investors upside.

“TELUS is expected to sustain 7-per-cent dividend growth for the next three years, with a commitment to this from the company being likely at the AGM (and Q1/25 release) in May,” he argued. “The combination of this growth, and a yield currently above 7 per cent, should drive outsized investor interest in T shares relative to BCE (higher yield, but high risk of a dividend cut, or at a minimum no dividend growth), RCI.B (lower yield and no dividend growth), and QBR.B (lower yield and less scale and liquidity). The income characteristics at TELUS screen very well versus Canadian alternatives, and it also stacks up well versus the combination of dividend growth and yield that we see from global telco names in a figure below. Our target price is based on a blend of dividend yield and EV/EBITDA, but for perspective, we highlight that a move back to the long-term average dividend to bond yield spread of 273bp would
put the stock at about $30 in one year (using a bond yield estimate of 3.0 per cent and using a dividend 7 per cent higher than today).”

The analyst also noted that he believes Telus should have little problem maintaining its ticket.

“The payout ratio on FCF (TD Cowen definition) remains above 100 per cent in the near-term (111 per cent estimated in 2025), but a combination of lower opex and lower capex (see next point on FTTH leadership) is expected to drive the payout below 100 per cent in 2026 (97 per cent estimated, albeit this would be right around 100 per cent if one backs out the portion of TIXT FCF that is not owned), even with 7-per-cent dividend growth in both 2025 and 2026. We do not view the payout ratio as ideal, but we believe it is manageable and acceptable (and it is better than what we see at the main yield alternative in the space, BCE). Other than dividends paid in shares under the DRIP (which we hope goes away by 2026), we do not expect TELUS to have much FCF post dividends to lower debt, but non-core asset sales should help with debt reduction and thus we believe the combination of leverage and payout ratio creates high quality dividend characteristics for investors.”

At press time, shares of Telus were up 0.2% to $22.16.