This analyst just upgraded Telus

National Bank Financial analyst Adam Shine upgraded Telus (Telus Stock Quote, Chart, News, Analysts, Financials TSX:T) to “Outperform” from “Sector Perform” and trimmed his price target to $21.00 from $23.00, saying the recent pullback in the share price has created a more favourable risk-reward setup despite ongoing debate over the company’s dividend-growth policy.

As reported by the Globe and Mail, Shine said he expects Telus to adjust that policy before considering any cut, arguing that payout levels remain manageable within the company’s deleveraging and DRIP framework.

Telus shares fell more than 5% on Tuesday after J.P. Morgan analyst Sebastiano Petti downgraded the stock, citing “dividend growth that appears unsustainable.”

The move followed a Globe and Mail column by John Heinzl, who wrote that investors are “increasingly concerned about the dividend’s long-term sustainability – or at least Telus’s ability to keep raising it.”

Shine said such concerns have been circulating for months.

“In a note on April 15 discussing dividends, our Telus section had the title of ‘dividend growth policy majorly elevated but will payout stay high in most unnecessary way,’” he said, adding that Telus disclosed its next 3%–8% dividend-growth range only weeks later.

Shine acknowledged that free cash flow payout ratios remain elevated, but argued that policy adjustments, not cuts, are the likeliest outcome.

“We forecast a FCF payout pre-DRIP of 118% in 2025, 107% in 2026, 104% in 2027 and 97% in 2028,” he said.

Post-DRIP, he estimates payout ratios of 77%, 80%, 83% and 90%. He noted the 2% DRIP discount will be phased out by the end of 2027.

“While this payout dynamic will remain in focus, we’d expect a change in the policy growth range before a cut to the dividend.”

LSEG data show an average Street target of $22.70, and Shine said he “struggle[s] to justify a target drop to as low as $19,” referencing a recent brokerage downgrade. He also outlined Telus’s trading history over the past year: he originally downgraded the stock to sector perform on Dec. 12, 2024, when it was just below $21. The shares ended that year around $19.50 before rallying ahead of 4Q24 results in February as investors reacted positively to Telus’s plan to reduce leverage to 3.0 times by 2027 from 3.9 times in 2024. The stock reached a 52-week high of $23.29 on March 10.

Shine said that when Telus was still under $22 in late February, he cautioned that “blue sky” expectations might already be priced in, pointing to the unusually wide valuation gap to BCE and Rogers, which he expected would narrow as their narratives evolved.

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