How low can those 11.5%-yielding (yes, it’s hard to believe, but it’s that high after last month’s 11% slide) shares of Telus (TSX:T) go? That’s the big question that I’m sure many Canadian deep-value investors (and high-yield chasers) have been asking themselves for years.
And while it’s hard to tell when the ailing telecom will finally hit the bottom, I am quite surprised that the name fell below the $15 per-share mark. Just a few percentage points lower and Telus stock could command a 12% yield. And if the firm doesn’t cut the payout (there’s no indication that it will anytime soon), perhaps this isn’t the most that the dividend yield will swell.
Either way, I’m not so sure a 12–13% yield will draw in a wave of buyers, especially since such yields seem far less sustainable. It’d be nice to lock in a yield that high that sticks, but, at the end of the day, it’s becoming harder to gauge what will help reverse the negative momentum, which can be tough to break, especially in a multi-year bear market that has seen shares shed more than half of their value.
What I’m most worried about at this juncture is not that Telus will disappoint on quarterly earnings results. Rather, what could happen is that analysts on Bay Street continue to lower the bar, either on their recommendations or price targets.
While I do think a hint of Telus or even BCE (TSX:BCE), which offers a well-covered but far lower dividend yield of 5.7%, might be worth adding to the value portfolio, investors shouldn’t expect their fortunes to turn at the drop of a hat. It has been a gruelling road to recovery, but, at the same time, you have to appreciate their respective management teams for making moves to chip away at leverage while positioning for the road ahead.
As telecom CapEx falls while AI data centre sovereignty becomes a bigger story in the coming decade, the big telecoms certainly have a way out. For now, I view the names as oversold, but unless you know how to catch a falling knife, I think it’s better to be cautiously bullish than pounding the table with a huge position all in one go.
Suncor Energy
These days, I’m a big fan of integrated energy names such as Suncor Energy (TSX:SU) on strength. The stock is moving higher again, now up close to 15% since its June lows. As tensions in the Middle East, along with the price of oil, move higher again, I think the energy names continue to help stabilize the waters, especially if your portfolio has been weighed down by higher energy prices.
Apart from being a well-run energy firm with a modest 16.6 times trailing price-to-earnings multiple, Suncor stands out as a decent hedge that can do well if oil spikes or stabilizes in a range that’s more comforting to markets. With decent (and improving) operating economics, buybacks, and a nice, growing 2.7% dividend yield, I consider the name to be a terrific value for dividend growth investors who aren’t quite comfortable buying the dip in telecoms just yet.
