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Should You Buy Telus Stock for Its 5.6% Dividend Yield?

Shares of telecom giant Telus (TSX:T)(NYSE:TU) are down 19% over the past 12 months. Despite being an industry leader and generating strong earnings numbers, investors have been bearish on the stock. One reason income investors may want to consider picking it up on the dip: it pays a yield of 5.6%. That's an attractive payout and on a $20,000 investment, you could generate more than $1,100 in annual dividend income each year.

A further incentive for income investors to buy it is that Telus plans to increase its dividend between 7% and 10% annually until the end of 2025. Currently, the stock pays a quarterly dividend of $0.3636, which is 3.6% higher than its April dividend payment of $0.3511. Telus has been growing its dividend for years and with a targeted payout ratio of no more than 75% of free cash flow, investors can rest assured knowing that Telus' dividend isn't in danger.

Telus has been performing well, with first-quarter results this year showing adjusted EBITDA growth of 11% and free cash flow rising by 29%.

Currently, Telus' stock is trading at 25 times its trailing earnings, which is a bit rich compared to Rogers Communications (TSX:RCI.B)(NYSE:RCI) and its 17 times earnings multiple and BCE (TSX:BCE)(NYSE:BCE) which trades at 22 times its profits. Restructuring, interest, and other expenses have been weighing on Telus' recent earnings so that is skewing the numbers a bit.

While Telus might not appear to provide the best value for investors right now, if you're planning to buy and hold the stock for years, then this could still be a good time to load up on the telecom stock given its fall in value and its elevated yield.