Is Telus Stock a Buy for its 7.3% Dividend Yield?

Although the 7.3% dividend yield Telus offers is attractive, it’s just one of many reasons why the telecom stock is worth buying today.

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When it comes to buying high-quality dividend stocks on the TSX, there’s no question that one of the best sectors to invest in is telecommunications. Telecom stocks are ideal dividend stocks due to their essential nature, the fact they constantly generate so much cash flow and the compelling dividends they offer. That’s why Telus (TSX:T) is one of the best dividend stocks you can buy.

Telus is one of the largest telecom stocks in Canada. It has an impressive track record of rapid and consistent growth, and it pays a dividend with a current yield of more than 7.3%.

Furthermore, the stock is not only consistently expanding its operations and increasing its profitability, but that growth also leads to both share price appreciation as well as consistent increases to its dividend.

So, let’s look at how Telus stock is positioned today, how it could perform over the coming years and whether it’s worth an investment today.

Why is Telus stock such a high-quality investment?

The telecommunications industry has always offered essential services, and these stocks have been cash cows for years.

However, in this day and age, where technology is consistently improving, most recently with the emergence of 5G and artificial intelligence (AI) technology, and with access to communications and the internet becoming more important by the day, the services that Telus and its telecom industry peers offer are extremely important and therefore make them highly recession resistant.

Furthermore, as I mentioned above, Telus is a cash cow that’s constantly generating billions in cash flow. Not only does it constantly generate cash due to its recession-resistant services, but also due to its long-life assets.

For example, once assets such as telecom towers and fibre cables are constructed, they can generate significant cash flow for Telus for years to come without needing much maintenance. This allows Telus stock to generate a substantial amount of cash each quarter, which it can use to invest in future growth as well as to fund the dividend today.

Therefore, Telus is easily one of the best dividend stocks on the TSX to buy and hold for years. It offers essential services, is constantly growing, and pays an unbelievable dividend, which continues to increase every year.

So, let’s look at what lies ahead of Telus and whether or not the stock is worth buying today at its current valuation.

Should you buy the impressive Canadian dividend stock today?

With Telus trading at just over $21 a share at the time of writing, the stock is now hovering near the bottom of its 52-week range, and its dividend yield has climbed to more than 7.3%, which is well above its average forward dividend yield over the last 12 months of just 6.9%.

This shows that the stock is offering attractive value today. Plus, with essentially all of its planned fibre cable installed now, which required billions in capex over the last few years, Telus can continue to focus on increasing the passive income it’s generating for investors while keeping its payout ratio in a manageable range (approximately 60-75% of its free cash flow).

In fact, while analysts expect just a 0.6% rise in sales this year, Telus’s free cash flow is expected to jump by more than 16.5%. Furthermore, analysts expect Telus’s revenue to increase by just 3.4% next year, but its free cash flow is expected to climb another 19.2%.

This goes to show how impressive Telus’s economics are and how much potential its dividend has to continue growing while remaining stable and reliable.

In fact, Telus continues to target semi-annual increases, as well as to increase the dividend by at least 7% each year through 2025.

Not to mention, with Telus stock trading near the bottom of its 52-week range, it currently trades at a forward enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of just 8.2 times. That’s below both its three and five-year average forward EV/EBITDA ratios of 8.8 times and 8.7 times, respectively.

Therefore, while one of the best dividend stocks in Canada trades off its highs and offers a more than 7% dividend, it’s certainly one of the best investments you can buy today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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