Is Telus Stock a Buy as the Yield Approaches 6%?

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The Canadian telecom scene has been under a lot of pressure over the past year, thanks in part to macro headwinds and the “thorn” of higher interest rates. Indeed, the outlook may have diminished on Canada’s top (the Big Three) telecoms.

With an economic recession likely to hit at some point over the next 18 months, questions linger as to where consumer spending heads from here. Indeed, the retailers have already felt some of the pinch, thanks partly to recession jitters, but mostly due to high levels of inflation.

Moving ahead, it could be more tough sledding for the telecoms. With few meaningful catalysts in sight, many investors seem to be hitting the pause button on the names as they slip further away from their all-time highs.

Indeed, the telecoms tend to be stable plays for income-seeking investors and retirees. Their very generous dividends and lower betas (a beta below one means a lower correlation to the market averages) make for a rock-solid foundation for any income stream.

Canadian telecom stocks correct sharply, with Telus taking the biggest hit to the chin

Over the past year, though, the telecoms have been anything but stable, with Telus (TSX:T) stock now down more than 30% from its high hit back in 2022. It isn’t just Telus that’s in a horrific bear market. BCE (TSX:BCE) is down 22% and counting from its own high. Indeed, industry conditions may seem dire with a recession to consider.

That said, the telecoms are pretty much where they were before the big 2021-22 surge. Telus stock went parabolic for a while before its gains were wiped out in the quarters that followed. Arguably, the recent wave of pain hitting the telecoms isn’t abnormal. It looks healthy, especially for investors looking to capitalize on the larger yields to be had.

Though a recession will always accompany uncertainties, I believe the risk/reward in a name like Telus more than makes up for the rockier climate we find ourselves in.

Telus shares trade at 23.4 times trailing price to earnings, or 24.8 times forward price to earnings. The multiple suggests there may be further downside in the name, as earnings begin to feel more headwinds.

It’s tough to call a bottom, as Telus retreats further below the $24 mark. Regardless, I like the 5.95% dividend yield and think it’s safe enough to grab here. Though it doesn’t seem like it, I believe Telus stock is the least risky it’s been in many years.

What’s next for Canada’s telecom stocks?

Moving forward, the telecoms face a highly uncertain macro environment. Device upgrades could drag, and we may even see some missed mobile payments depending on how hard the recession hits. In any case, I expect Telus to continue playing the long game for investors.

The company sports an impressive 7.8% dividend compound annual growth rate. I don’t see the coming recession weighing too heavily on the payout, even if shares sag further and the commitment becomes a tad heavier.

At the end of the day, Telus is a great company that can reward investors with the perfect mix of growth and dividends. I think the 30% drop is excessive and could prove a great buying opportunity for investors brave enough to punch their ticket with the bear in the driver’s seat.

The post Is Telus Stock a Buy as the Yield Approaches 6%? appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.