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“Best Buys Now” Pick #1:
Telus (TSX: T)
It’s rare that a company of Telus’s (TSX: T) ilk finds itself in value territory. Generally, these times are reserved for periods of severe market disruption, when everything is on sale, or a disconnect at the company level has occurred.
Neither currently applies to Telus, yet you can pick up shares today that appear cheap on at least two levels.
For one, based on Telus’s current dividend yield, the stock is what’s known as “absolutely” cheap. That is, based on at least one metric, Telus looks cheap all on its own.
Trading with a dividend yield north of 6%, Telus is well beyond where investors have been able to buy the stock for much of the past decade. The current yield even surpasses what was available during the market disruption experienced at the onset of the pandemic.
That’s interesting.
Furthermore, Telus also appears “relatively” cheap when we compare its dividend yield to one of its primary peers, Rogers (TSX: RCI.B).
Over the past decade, the spread between Telus’s and Rogers’s dividend yields has averaged 1%. With the recent selloff in Telus stock, that spread now exceeds 2.5%.
To bring it back in line with the 10-year average, Telus would need to yield about 3.5%. This translates to a stock price of $41. Telus is currently priced at just over $23.
That, too, is interesting.
While an exercise like this can demonstrate upside, the real message has to do with downside protection. You’re unlikely to lose money buying Telus shares over the next five years, given its current valuation.
That said, my colleagues and I at Stock Advisor Canada think this is a company that offers a unique growth opportunity relative to its Canadian telecom peers, and the upside scenario painted by this exercise is entirely within the realm of possibility. We view this stock as a potential double with limited downside risk. And from where we sit, the more of these we load into our portfolios, the better.
