3 Reasons to Buy and Hold Telus Corporation

Telus Corporation (TSX:T)(NYSE:TU) deserves a permanent place in your portfolio.

| More on:
The Motley Fool

If only every stock was like Telus Corporation (TSX:T)(NYSE:TU).

Since I wrote my first column about Telus back in March 2014, shares of the telecom giant have delivered a 15% total return, including dividends. During that time, the company has hiked its distribution by more than 11%!

These are backward-looking numbers, of course. However, there’s reason to believe that Telus will continue to post solid returns for shareholders. Now, what the stock does in the short term is anybody’s guess, but over the long haul, I expect investors will be rewarded nicely.

Here’s why.

1. It has a wide moat

What is the most important trait in a business? A competitive advantage.

To determine whether or not a company has an edge in the marketplace, ask yourself, “If I had a billion dollars, how much could I hurt these guys?” In the case of Telus, you couldn’t do much damage.

Let’s imagine if you and I wanted to start our own telecom company. Even if we could scrape together a couple billion bucks, we wouldn’t stand a chance. On that budget, we couldn’t even pay for all of the needed transmission towers or wireless spectrum.

Heck, Verizon had tens of billions of dollars in its war chest, and the American telecom giant couldn’t make the numbers work for a Canadian expansion.

New competition is unlikely to pose much of a threat to Telus. That should translate into oversized profits (and dividends) for years to come.

2. Excellent customer loyalty

Telus has shown an uncanny ability to retain customers.

Last quarter, the company’s monthly postpaid churn rate was just 0.94%, the lowest in North America. In an industry where companies are the frequent target of consumer wrath, Telus’s low churn rate sends a positive signal.

Why is this relevant to investors? Firms with loyal customers are better able to pass on higher prices. That usually translates into superior profit margins and strong free cash flows.

That puts Telus in a better position to return money to shareholders.

3. It’s a dividend powerhouse

Telus is one of the oldest dividend payers in the country, sending out a cheque to shareholders every year since 1916.

Think of everything that has happened over that time: wars, recessions, financial crises. Yet through all the ups and downs, the firm never disappointed its loyal investors.

Telus isn’t just a solid dividend payer. It’s also one of the most predictable. Last year, management pledged to raise the company’s dividend twice per year through 2016 at a 10% annual clip. That’s a strong vote of confidence in the business.

Of course, you can’t cash these dividend hikes just yet. Future payout increases will depend on the company’s cash flows and still need to be approved by the board. But executives would not have risked their credibly unless they were sure they could deliver.

Now, all of these points are just common sense. Strong companies with loyal customers that take care of their shareholders should do better over time. It doesn’t take an MBA to figure that out.

But while owning stocks like Telus won’t impress your friends at the next cocktail party, Telus will give you the best chance of compounding your money over the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned.

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »