Telus Corporation (TSX:T)(NYSE:TU), one of the three largest telecommunications companies in Canada, has widely outperformed the overall market in 2015, rising just over 3% as the TSX Composite Index has fallen over 5%, and I think it could continue doing so for the next several years. Let’s take a look at three of the primary factors that could send its shares higher in both the short and long term, so you can decide if it should become a core holding in your portfolio.
1. Its strong financial performance could support a higher stock price
On the morning of August 7, Telus announced very strong earnings results for its three and six-month periods ending on June 30, 2015, but its stock has fallen over 3.5% in the weeks since, primarily due to the downturn in the market.
Here’s a summary of 10 of the most notable statistics from the first half of fiscal 2015 compared with the first half of fiscal 2014:
- Adjusted net income increased 8.2% to $833 million
- Adjusted earnings per share increased 10.5% to $1.37
- Operating revenues increased 4.9% to $6.13 billion
- Revenues increased 7.4% to $3.42 billion in its wireless segment
- Revenues increased 1.8% to $2.82 billion in its wireline segment
- Total subscriber connections increased 2.5% to 13.94 million
- Adjusted earnings before interest, taxes, depreciation, and amortization increased 5.6% to $2.29 billion
- Operating income increased 4.3% to $1.3 billion
- Cash provided by operating activities increased 14.3% to $1.66 billion
- Free cash flow increased 14% to $571 million
2. Its stock trades at inexpensive forward valuations
At today’s levels, Telus’s stock trades at just 17.5 times fiscal 2015’s estimated earnings per share of $2.47 and only 15.7 times fiscal 2016’s estimated earnings per share of $2.76, both of which are inexpensive compared with the industry average price-to-earnings multiple of 20.1.
I think Telus’s stock could consistently command a fair multiple of at least 18.5, which would place its shares upwards of $45.50 by the conclusion of fiscal 2015 and upwards of $51 by the conclusion of fiscal 2016, representing upside of more than 5% and 18%, respectively, from current levels.
3. It has a 3.9% dividend yield with a dividend-growth program in place
Telus pays a quarterly dividend of $0.42 per share, or $1.68 per share annually, which gives its stock a 3.9% yield at today’s levels. The company has also increased its dividend nine times since announcing its multi-year dividend-growth program in May 2011, and it expects to increase it by another 10% annually through 2016.
Should you buy shares of Telus today?
I think Telus Corporation represents one of the best short-term and long-term investment opportunities in the market today. Its strong financial results in the first half could support a rally, its stock trades at inexpensive forward valuations, and it is dividend-growth play. Foolish investors should strongly consider making it a core holding.
