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Telus Stock: An Overlooked Canadian Dividend Opportunity

Telus (TU) is a Canadian telecom that few Americans have likely heard of.

While I am a fan of the American telecoms, I do think that that the Canadian telecom landscape has its own set of unique advantages. For that reason, they’re also worth owning in addition to the U.S. telecoms, or even over them if the price is right. Today, Telus provides a good combination of growth, and a sizeable upfront dividend yield that’s just below 5%.

While you could achieve far greater yields with the likes of an AT&T (T), or solid growth from a T-Mobile (TMUS), I find it tough to find the perfect blend of both from one single stock in the U.S. (See Analysts’ Top Stocks on TipRanks)

Canada’s Big 3 telecoms

In Canada, the Big Three telecoms of Telus, BCE (BCE), and Rogers Communications (RCI) dominate. They’ve got a bit of a triopoly, and competition is considerably less fierce than it is in the U.S. So, you won’t find jaw-dropping promotions for switching telecom providers in Canada.

Being a member of a triopoly comes with greater pricing power. The power of the Big Three Canadian telecoms has been a hot topic issue in Canadian politics, with NDP (New Democratic Party) leader Jagmeet Singh previously noting that they were effectively “ripping Canadians off.”

Other political leaders have also taken aim at the Big Three Canadian telecoms, noting of the high prices for mobile data versus rates enjoyed by Americans south of the border.

With recent consolidation activity in Canada, with Rogers acquiring number four telecom Shaw Communications, it’s clear that the power of the Big Three can only increase from here.

The Liberal minority government had made promises to take action in the past. With the recent Shaw-Rogers merger, it’s unlikely that any effort to lower wireless rates in Canada will happen anytime soon.

Too Cheap for Its Own Good

Telus, a growing telecom that’s comparable to a T-Mobile, in that it has a considerable amount of brand affinity for great customer service and network quality, seems like an undervalued way to play the unique Canadian telecom space.

Shares of the $28-billion company have slid around 5% from their high, alongside the rest of the telecom scene. The dividend has swollen accordingly, and the valuation seems too good to pass up for investors who want a T-Mobile-like play.

We all know T-Mobile. It’s a top performer that’s worth paying up for. While Telus may not be growing at the same magnitude, it does have an opportunity to take share in the Big Three space, which seems well insulated from any external competitive disruptions.

Given Telus’ distinct advantages, and a more favorable market environment that comes with higher prices charged to consumers who don’t have as many alternatives, Telus stock deserves to trade at more than just 31.1 times trailing earnings.

Wall Street’s Take

According to TipRanks’ consensus analyst rating, T.U. stock comes in as a Strong Buy. Out of eight analyst ratings, there are seven Buy recommendations, and one Hold recommendation.

The average Telus price target is $25.05. Analyst price targets range from a low of $22.53 per share, to a high of $26.56 per share.

Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.

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