An impressive Canadian share that's 'nice' too

by Rodney Hobson from interactive investor |

It makes big money, pays a large dividend and gives something back to the community. What's not to like?

Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.

Despite its wide open spaces, Canada enjoys one of the fastest wireless connections in the world and Telus (TSE:T)) is its fastest-growing telecoms company, providing phone connections, Internet access and television services to residential and business customers. It also offers cloud-based services to business customers through its data centres.

It is Canada's third-largest cellphone provider and having its headquarters in Vancouver, British Columbia, has enabled it to build a dominant position in the western provinces, although it is also strong in Quebec, where it is a direct challenger to Montreal-based Bell Canada.

In 2018, it increased total connections by 2.9% to 13.4 million. Coupled with growth in the wireless subscriber base, the 7.2% extra revenue produced beat the company's 4-6% growth target. Improved margins and lower income taxes more than offset increased financing costs and depreciation.

Capital spending was higher than planned but that is no bad thing, reflecting as it does investment in broadband infrastructure, including connecting more homes and businesses directly to the company's fibre-optic network.

Because Telus has consistently hit its financial targets it has been able to grow the quarterly dividend – last year the increase was 6.6% to a total of C$2.10. Investors may fret that this was not particularly well covered by earnings of C$2.68, but Telus has a policy of returning capital to shareholders and continuing growth in earnings means it can justify a low dividend cover. The dividend has been raised, at half-yearly intervals, 17 times over the past eight-and-a-half years.

This year's targets are for a slightly more modest rise of 3-5% in revenue driven by continued growth in data services across wireless and fixed lines, supported by strategic investments in advanced broadband technologies.

Source: interactive investor  Past performance is not guide to future performance

Projected capital expenditure at C$2.85 billion will be roughly in line with last year, and it is reasonable to think that earnings per share will be pretty much in the middle of the rather wide 2-10% target range. On that basis it is hard to see Telus ending its dividend growth policy.

Indeed, it has just extended the dividend growth programme to 2020 with targeted annual increases of 7-10%.

The company insists, however, that this will not be at the expense of the investment programme, which is vital if Telus is to maintain its position in a country with one of the fastest wireless connections in the world.

First-quarter results for 2019 showed that 99,000 new customers had been added: 11,000 mobile phones, 49,000 wireless devices, 22,000 Internet and 17,000 television connections. Growth in new customers is up 55% on last year while the churn of only 1.02% in mobile phone customers is the best that Telus has achieved so far.

Operating revenue of C$3.5 billion was up 3.8% on the same quarter last year, the rise driven mainly by wireless and data services, and net income of C$437 million increased by 6.1% despite higher depreciation and amortization, resulting from investments in broadband technologies and from business acquisitions, as well as increased financing costs.

The quarterly dividend was increased to 56.25 Canadian cents, covered by earnings per share of 71 cents. 

Telus has made a virtue of putting time and cash into community projects in Canada, with 7% of 2018 pre-tax profits allocated, particularly to youth work and the environment. It claims to help 2 million young people every year.

It also has a fast-growing health division, putting subscribers in touch with its medical teams and making additional use of its telecoms connections. 

The shares have been rising for the past three-and-a-half years, from a low of C$36 in January 2016 to around C$50 now. However, the yield is still an attractive 4.5% and the price earnings ratio is not too demanding at 18.5.

Hobson's Choice: Buy Telus at up to C$52. 

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.


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