The Canadian telecommunications sector has faced significant headwinds recently, and Telus (TSX:T)(NYSE:TU) is a prime example of that. The stock is currently down 19% this year, a sharp decline that has frustrated many long-term shareholders, especially with its losses over the past five years now getting close to 50%.
However, this steep drop in share price has pushed the company’s dividend yield to an astonishing 11.6%. For income-focused investors, this presents a highly intriguing, albeit somewhat complex, opportunity.
At first glance, a double-digit yield often signals that the market anticipates a dividend reduction. If you are considering investing, you must be realistic about the possibility that management could trim the payout to preserve capital. But here is the bull case: even if a significant dividend cut happens, the resulting yield is still likely to remain exceptionally high relative to the broader market. Plus, the stock may end up rallying as investors may take that as a sign of confidence that management is making tough but necessary moves for the company's long-term health.
Telus can be particularly valuable inside of a tax-free savings account (TFSA), where all that dividend income is sheltered entirely from taxes, allowing you to reinvest the full amount or use it as a reliable stream of cash flow. Telecommunications remains an essential service, and the company’s core infrastructure is critical to the Canadian economy.
While the stock's performance is undeniably disappointing, buying a premium infrastructure business at a heavy discount can pay off. By purchasing shares now, investors can secure an outsized yield and position themselves for substantial gains when the sector recovers.
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