What is your idea of a high-yield dividend stock – 6%, 7%, 10%? The higher the yield, the higher the risk. However, this stock balances the risk and yield and gives you an opportunity to increase your yield beyond 10% if you stay invested in it for the long term. Telus Corporation (TSX:T) is in the telecom sector downturn that has reduced its stock price by 38% from its peak and inflated its dividend yield to 7.4%
Why is Telus stock the best high-yield dividend for you?
Most high-yield dividend stocks do not grow their dividend per share. However, Telus has been growing its dividend by 7% to 10% annually since 2011. Despite such high dividend growth, the company’s dividend payout ratio is within the targeted 60% to 75% of free cash flow (FCF).
However, the regulatory challenge, 5G technological upgrade, and high interest expense pulled down its FCF because of which the dividend payout ratio increased to 91% in the first quarter. The company is restructuring its business to adjust to the new business environment. It is on track to cut 6,000 jobs and reduce its operating expenses. The management has no plans to cut or pause dividend growth.
Moreover, T is among the few high-yield stocks that still offer dividend reinvestment plans (DRIP). This program can help you compound your returns.
How to compound a 7.4% annual yield to 22%?
A DRIP reinvests the dividend to buy more shares of Telus, which generates a similar dividend per share. Since the company has already paid three quarterly dividends, you can get only one quarterly dividend, which means a 2% yield in 2024. I have given the breakdown of how your yield will compound.
| Telus stock price | Year | Telus DRIP shares | Telus share count | Telus dividend per share (6% CAGR) | Telus dividend |
| $22.00 | 2024 | 454.0 | $1.5600 | $176.65 | |
| $30.00 | 2025 | 5.89 | 459.9 | $1.6536 | $760.47 |
| $30.00 | 2026 | 25.35 | 485.2 | $1.7528 | $850.53 |
| $30.00 | 2027 | 28.35 | 513.6 | $1.8580 | $954.24 |
| $30.00 | 2028 | 31.81 | 545.4 | $1.9695 | $1,074.14 |
| $30.00 | 2029 | 35.80 | 581.2 | $2.0876 | $1,213.33 |
| $35.00 | 2030 | 34.67 | 615.9 | $2.2129 | $1,362.85 |
| $35.00 | 2031 | 38.94 | 654.8 | $2.3457 | $1,535.96 |
| $35.00 | 2032 | 43.88 | 698.7 | $2.4864 | $1,737.23 |
| $35.00 | 2033 | 49.64 | 748.3 | $2.6356 | $1,972.28 |
| $35.00 | 2034 | 56.35 | 804.7 | $2.7937 | $2,248.04 |
Telus is trading at its multi-year low. So you can buy more shares for a lower amount and lock in a 7.4% yield. A $10,000 investment today can buy you 454 shares of Telus and give a quarterly payout of $176.65 on January 2, 2025.
If you opt for a DRIP, this dividend amount will keep accumulating more Telus shares while saving brokerage costs. Assuming the Telus shares return to their normal trading price of $30 in the mid-term and grow to $35 in the long term, you could accumulate 804.7 shares of Telus.
If Telus continues to grow its dividend at a compounded annual growth rate of 6% (considering the growth rate slows), you could get a $2.79 dividend per share. Your one-time $10,000 investment in 2024 could give you $2,248 in dividend income by 2034, a 22.5% dividend yield.
Investing in Telus
Telus stock is trading at its multi-year low as the market has priced in regulatory changes and high interest rates. Thus, it has reduced downside risk. A favourable interest environment and the 5G opportunity will help the stock grow in the long term. These drivers will allow you to appreciate your $10,000 investment alongside dividends.
Telus brings a combination of a high yield, a high dividend growth rate, and an option to reinvest, making it a perfect high-yield stock to boost your passive income portfolio. Moreover, the opportunity to benefit from a recovery rally is a bonus.
