The Canada Revenue Agency (CRA) has reset the Tax-Free Savings Account (TFSA) contribution room to $7,000 for 2025. If you are working out your investment strategy, you might want to add this 8% passive-income stock that not only pays quarterly dividends but also grows the dividend by 3.5% every six months. Before buying this stock, you should understand the risks and opportunities that come with it. And what kind of returns do you expect in one, two, and five years? The expectation of future earnings is what determines the stock price of the present day.
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Risks and opportunities this passive-income stock brings
Telus (TSX:T) is the stock in discussion today. A stock is exposed to the company’s business risk, fundamentals, and investor sentiment. Even if a stock has everything going right, its share price could be trading low because the investment landscape is dry. People may not have the money to invest or are fearful and are holding on to cash.
Company’s business risk
Telus is one of Canada’s three largest telecom operators and a winner in poaching the client base of Shaw Communications after the latter was acquired by Rogers Communications. Like every business, customer acquisition has a cost. Yet businesses bear the cost as a loyal customer base, which gives them significant profit in the long term.
Telus has put behind the price war it entered with Bell Canada for customer acquisition. It is now restructuring its business to cut costs, sell low-margin or non-core assets, and use the proceeds to reduce the debt it took to build the 5G infrastructure. Most of the risk is behind.
Telus fundamentals
However, until its elevated debt levels come down to manageable levels, we cannot rule out the possibility of a slowdown or pause in dividend growth. If you are worried that Telus will cut dividends, it is unlikely, as the company’s dividend-payout ratio is 92% of the free cash flow at the end of the third quarter, below 100%.
The year, Telus could reduce its interest expense as the impact of interest rate cut seeps in. Moreover, the company could increase its prices and use the newly acquired customer base to cross-sell products and services without incurring heavy costs. All these efforts could keep dividends under close watch.
Investor sentiment
High debt levels, a 40% cut in immigration numbers, and regulatory uncertainty kept investors cautious about telecom stocks. This uncertainty grew in December, and Telus stock fell 12.8% as the TSX Composite Index fell 3.62%. The stock fell despite the telecom company announcing a 3.5% growth in January 2025 dividend per share. The dip in stock price and dividend growth has elevated the dividend yield to 8%.
Telus is trading at a forward price-to-earnings (P/E) ratio of 19.53, lower than last year’s ratio of 22. It means investors are willing to pay $19.5 for every $1 of 2025 earnings per share.
What returns to expect from this passive-income stock
Telus stock is closer to oversold as investors overreacted to the business risks. This year could see a recovery in its profits as the price war ends and interest expenses eating up its profits fall. Moreover, falling interest rates could make dividend stocks more attractive than interest in term deposits.
| Telus Stock Price | Year | Telus DRIP Shares | Telus Share count | Telus Dividend per share (6% CAGR) | Total Dividend Amount |
| $21.39 | 2025 | 150.0 | $1.6092 | $241.38 | |
| $25.00 | 2026 | 9.66 | 159.7 | $1.7058 | $272.33 |
| $28.00 | 2027 | 9.73 | 169.4 | $1.8081 | $306.26 |
| $30.00 | 2028 | 10.21 | 179.6 | $1.9166 | $344.20 |
| $30.00 | 2029 | 11.47 | 191.1 | $2.0316 | $388.16 |
Now is a good time to invest $3,000 in the Telus dividend-reinvestment plan (DRIP). A high dividend per share and low stock price could help you buy more DRIP shares and compound your passive income. If Telus continues to grow its dividend by 6% annually and its stock price increases to $30 over the next five years, the DRIP can grow its annual dividend from $241 to $388.
