TFSA Passive Income: Is Telus Stock a Buy, Sell, or Hold?

The Tax-Free Savings Account (TFSA) can hold various qualified investments, such as stocks, bonds, exchange-traded funds, and mutual funds. As any gains generated in the registered account are sheltered from Canada Revenue Agency taxes, investors should consider holding a basket of dividend-growth stocks in the TFSA.

Quality dividend stocks generate returns via capital gains in addition to regular dividend income. One blue-chip TSX dividend stock you can hold in a TFSA is telecom giant Telus (TSX:T). With a market cap of $33 billion, Telus pays shareholders an annual dividend of $1.50 per share, translating to a forward yield of 6.75%.

In the last 20 years, Telus stock has returned 280% to shareholders. After adjusting for dividends total returns are much higher at 770%. Comparatively, the TSX index has returned “just” 356% in this period after accounting for dividend reinvestments.

Let’s see why Telus stock should be part of your dividend portfolio right now.

Is Telus stock a good buy right now?

Despite its market-beating gains, Telus stock is down 35% from all-time highs, allowing you to buy the dip. While Telus is part of a mature industry, its total mobile and fixed customer growth stood at 404,000, which was the company’s strongest fourth quarter (Q4) on record. Telus attributed the subscriber growth to robust demand for its portfolio of bundled products and services.

Net additions for mobile phones stood at 126,000, allowing it to surpass 10 million mobile phone subscriptions. Comparatively, connected net device additions stood at an all-time quarterly record of 203,000.

Its stellar results allowed Telus to increase operating revenue by 2.4%, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 9.4% and net income by 17% year over year in Q4 of 2023. In 2023, its operating revenue grew by 9.4% to $20 billion, while adjusted EBITDA growth stood at 7.6%.

A widening dividend payout

Telus increased free cash flow by 38% year over year to $1.8 billion, a significant portion of which was distributed to shareholders via dividends. In fact, the telecom sector’s recession-resistant nature has allowed Telus to raise dividends by 11% annually in the last 19 years.

In 2024, Telus expects operating revenue to grow between 2% and 4%, while adjusted EBITDA growth is forecast between 5.5% and 7.5%.

Telus has allocated $2.6 billion to capital expenditures, which should drive future cash flows higher. It expects free cash flow to expand by 30% to $2.3 billion, indicating that dividend payouts should also increase in the next 12 months.

Priced at 22 times forward earnings, Telus stock might seem expensive. But adjusted earings are forecast rise by more than 25% in the next two years.

Create passive income in your TFSA

The average TFSA balance in 2023 is around $41,500. So, an investment of $41,500 in Telus stock will help you earn close to $2,790 in annual dividend income. If these payouts increase by 10% each year, your dividend income will double in the next seven years.

You should identify other quality dividend stocks, such as Telus, and diversify your TFSA portfolio further, reducing overall risk.