I have recently taken a position in Telus Communications Inc, (T) and I feel like I got in at a good time. Canadian Telecoms have a big monopoly in Canada with Bell Media(BCE) being the top dog followed by Telus and then Rogers Communications Inc(RCI). As you know, I already also have a position in Bell but I really wanted to take advantage of Telus’ recent stock split. Thanks to Covid-19 and our recession they probably split at the perfect time bringing their price range well bellow what I wanted to get in at. I feel like there is a rule of thumb with Canadian monopolies and especially Canadian banks which basically says to buy any time they split cause you know its gonna come right back up.
Now I know that it is very important to diversify your portfolio but in this case I know that adding Telus to my portfolio is a smart growth move. Bell has taken over Eastern Canada and is moving into Western Canada which makes the giant even bigger. But what about Telus? They have Western Canada covered but they are moving into Eastern Canada thus taking business away from Bell. As we all know the East has a much bigger population then the west making it much easier to take a bigger piece of Bells Pie then Bell does of Telus’ in the west. This to me for the foreseeable future makes Telus a much better growth opportunity then Bell. Not to mention all of the different sectors that Telus has recently broken into.
So aside from being in one of Canada’s biggest sector monopolies, charging ridiculous prices for all their services and recently acquiring ADT(home security systems) what makes Telus such a big company and good investment? Well, Telus owns other companies that you might not know is theirs. They created their own discount mobile services provider called Koodo in 2008, they provide postpaid and prepaid services to cellphones. Telus also owns the Science centers in Vancouver, Edmonton and Calgary. Telus even owns several office buildings that are located in Calgary, Edmonton, Montreal and Toronto. They have done all of this in their short 30 years of being a company. Oh, did I also mention that they have created Telus Health and are now Canada’s biggest health-care information technology company?
All of this shows that Telus is not slowing down their growth or just sticking to a single sector. They are branching out and moving into different sectors all while doing so effectively and efficiently. In 2019 Telus bought ADT’s Canadian Assets for $700 Million and in 2018 for $100 Million they purchased a chain of medical clinics and created their telus health app. The last company Telus bought was Mobile Klink in July 2020 for considerations of $165 Million in hopes of expanding their wireless business. Lastly Telus finally rolled out their 5G network in June 2020 in the cities of Vancouver, Calgary, Montreal, Edmonton and greater Toronto area. They plan to roll it out to 26 other markets across Canada through out the rest of the year. I feel like its safe to say that what ever other sector they plan to get into, the competition better watch out or be prepared to be bought out.
Just like every other company Telus has also been hit by Covid-19. Their equipment revenues fell in the second quarter of this year because 90% of their retail stores were closed down. Telus has also reported negative earnings in the first and second quarter of this year. We will have to wait for their Q3 earnings that will be released in the first 2 weeks of November. On a positive note though Telus is up to 15.2 million customer connections(adding 1.2 million new subscribers in 2019) and created $14.7 Billion in annual revenue. They have also not cut or scaled back their dividend but they want to stay between 60%-75% of free cash flow which they are currently just over in order to grow their dividend between 7-10%. But they did agree to defer any dividend increases and keep the dividend as is for now. I would keep an eye out if they decide to increase it because that means that their free cash flow is probably increasing.
I feel like there are way to many upsides to investing in Telus over Bell. You need to take into account their ability to hit the growth that Bell is already in, their push into new markets/sectors and their recent stock split. I really believe that they will play out alot like the banks in the fact that they will start to come back from the split and once they start having better earnings they will grow their dividend as well. Not to mention their payout ratio is lower than Bells so that makes them a little more appealing haha. Lets take a look at Telus and Bell’s numbers.
Telus(T)-$22.71CAD/Share, $29.0 Billion Market Cap, 1.17 EPS, 19.47 P/E(forward), Dividend Yield of 5.13%(1.66/Share Annual) and a Dividend Payout Ratio of 87.5%
Bell Media(BCE)-$53.43CAD/Share, $48.3 Billion Market Cap, 2.7 EPS, 17.83 P/E(forward), Dividend Yield of 6.23%(3.33/Share Annual) and a Dividend Payout Ratio of 98.2%
*Disclaimer, all share prices are after market close as of October 30, 2020. I currently hold a position in Bell and Telus.
That is all for today and remember everyone, invest in yourself first.