Telus is my top telecom stock, Brian Madden says

Brian Madden, Chief Investment Officer at First Avenue Investment Counsel, said on BNN Bloomberg’s Market Call on July 25 that Telus (Telus Stock Quote, Chart, News, Analysts, Financials TSX:T) is his top pick among Canadian telecoms, noting its current dividend yield of about 7.4%.

“That’s quite elevated relative to the 10-year average dividend yield of about 5.3%,” he said. “But yield alone isn’t enough. We have a dividend growth mandate, and we believe the dividend is not only secure but will grow faster than those of Canada’s other telcos. That’s been validated by management and the board increasing the dividend by 7% through two hikes in November and May. All of the telecoms should also see easier earnings comparisons in the coming quarters as they lap the cell phone price war that began about a year and a half ago, which hurt industry profits.”

Madden said Telus benefits from strong financials and operational focus, giving it an advantage while some rivals are still working to integrate recent acquisitions.

“Beyond that, it has a small but growing group of faster-growing non-telecom businesses, including in healthcare—such as what used to be Morneau Shepell, the benefits and consulting firm, which is now part of Telus,” he said.

In 2022, Telus acquired LifeWorks, formerly Morneau Shepell, in a deal valued at $2.9-billion, including debt. LifeWorks provides services such as employee assistance programs, absence management, pension and benefits administration, and retirement planning.

Madden also sees potential in unpriced catalysts, such as Telus’s initiative to monetize surplus urban real estate by redeveloping former central switching stations—now obsolete—into high-rise housing.

“Real estate is obviously more valuable than idle copper, not to mention, they believe the copper alone could be worth up to a billion dollars just sold as scrap,” he said. “There are a lot of interesting elements here that we don’t think are reflected in the share price. So we like this one and continue to own it.”

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