Telecommunication companies have long been a favorite of high-yield income investors, thanks to their utility-like recurring cash flows which typically allow for generous and secure dividends.
Let’s take a look at Telus, a Canadian blue chip telecom, to see if it appears to be an attractive income stock for our Conservative Retirees dividend portfolio.
Founded in 1993 in Vancouver, Canada, Telus is one of Canada’s big telecom providers with rough one-third of the national wireless market and over 40% of the internet market. The company is especially dominant in Western Canada where it serves a total of 12.7 million customers.
Telus primarily operates in four businesses:
Wireless: 8.6 million customers
Internet: 1.7 million customers
Residential Access Lines: 1.4 million customers (traditional phones)
Cable TV: 1 million customers
Telus reports the internet, phone, and cable TV businesses as part of its wireline (physical connection) business segment.
The company also operates data centers which offer cloud computing solutions (wireline data), as well a pharmacy, medical records, and medical claims management under its subsidiary Telus Health, which is also listed as part of the wireline segment.
As you can see, Telus’ wireless business is by far the most important in terms of revenue and EBITDA.
Meanwhile, the company’s internet and cable TV businesses are the fastest-growing units, while its legacy phone business is in secular decline – a trend that most telecoms around the globe are dealing with.
At first glance, Telus’ recent top and bottom line growth appears potentially troubling. However, that’s largely due to currency fluctuations between the U.S. and Canadian dollar.
Source: Simply Safe Dividends
Also note that the apparent sharp decline in free cash flow (FCF) per share is largely due to Telus’ recent aggressive investment phase, which saw capital expenditures (i.e. investments in their networks) grow from 1.8 billion CAD in 2007 to an all-time high of 4.6 billion CAD in 2015, according to Morningstar.
|Revenue||9.074 billion CAD||12.799 billion CAD||3.9%|
|EPS||1.88 CAD||2.06 CAD||1.0%|
|FCF per Share||2.10 CAD||0.54 CAD||-14.0%|
In addition, Telus has been undergoing a long-term corporate restructuring as it pivots away from its legacy phone business and towards faster-growing and more profitable wireless, internet, and pay TV businesses.
Telus became Canada’s largest wireless company in 2000 when it agreed to acquire Clearnet Communications for $6.6 billion. The deal transformed Telus from a regional phone…