Are you looking to grow dividends? Many energy companies slowed dividend growth after the pandemic. And the rising interest rate environment has put many companies in a cost-saving mode. Amid rising inflation and interest rate hikes, one stock announced plans to increase its dividend by 7–10% every year between 2023 and 2025.
Telus Corporation (TSX:T) has been growing dividends since 2005 at a compounded annual growth rate (CAGR) of 11.8%. Telus is the third largest telecom company in Canada. The company also provides information technology services, which it spun off as Telus International in February 2021 during the tech bubble. The spin-off created value for shareholders as Telus International stock has a growth model, whereas Telus Corporation stock has a dividend model. Hence, the latter offers an attractive dividend yield of 5.2%.
Why is this stock a genius buy for dividend growth?
Most stocks grow dividends once a year. Telus Corporation pays a quarterly dividend and grows it every six months. The company has maintained this frequency since 2010. Management announced a three-year dividend program during which it aims to grow the dividend by a certain percentage. It announced the dividend program in May 2011 and has been extending it by three years since then.
| Year | Annual Dividend/share | % change |
| 2023* | $1.43 | 7.0% |
| 2022 | $1.33 | 6.2% |
| 2021 | $1.25 | 7.7% |
| 2020 | $1.17 | 5.2% |
| 2019 | $1.11 | 7.5% |
| 2018 | $1.03 | 5.9% |
| 2017 | $0.97 | 8.1% |
| 2016 | $0.90 | 9.8% |
| 2015 | $0.82 | 10.8% |
| 2014 | $0.74 | 12.1% |
| 2013 | $0.66 | 10.9% |
| 2012 | $0.60 | 10.7% |
| 2011 | $0.54 | 10.3% |
| 2010 | $0.49 | 2.6% |
| 2009 | $0.48 | 5.6% |
| 2008 | $0.45 |
Since 2011, Telus has grown its annual dividend by an 8.8% CAGR. So if you invested $1,150 to buy 100 shares of Telus in 2011, your annual dividend would have grown from $48.75 to $133 in 2022. In these 11 years, you would have accumulated $1,160 in dividend income, and your invested capital would have appreciated to $2,700.
Can this stock sustain its 7–10% dividend growth?
The high dividend growth rate makes you question if it is sustainable. The market is dynamic. In response, management keeps a three-year dividend growth target. 2011-2021 was the 4G era when the world moved towards video calling and the cloud. The company also enjoyed low-interest rates and controlled inflation.
But the macro environment has changed. Canada is witnessing its highest interest rates since 2007 and the highest inflation in 40 years. While these are macro figures, they are impacting the purchasing power and borrowing cost of an average Canadian. The demand for Telus services is resilient to economic factors as the internet has become integral to daily expenses.
However, Telus is also facing heat as inflation and interest rates have increased its expenses. The company completed its 5G rollout through accelerated capital spending when the interest rate was low. So far, the company remains on track to grow its dividend by 7–10% by paying out 60–75% of its free cash flow as dividends.
What’s , the dividend growth looks sustainable. In the event of a recession, Telus might pause or slow its dividend growth as it did after the 2008 Financial Crisis. Though the company could continue paying dividends.
How to benefit from the dividend growth?
If you are looking for a safer investment option that is resilient to the current market uncertainty, Telus Corporation is a good option. T stock can continue to pay dividends through the next three years and even grow them semi-annually. The current bear market has pulled the stock price down 6% from its February high.
Now is the right time to lock in a 5% dividend yield that can grow semi-annually for years to come. This stock can give you a passive income that can beat inflation.
