- Telecom companies have been taking steps to strengthen their balance sheets amid a wider industry slowdown, analysts say.
- Telus is broadly seen as the last major telecom to cut its dividend for the foreseeable future.
- Operators are expected to use some of the freed-up cash to repay debts.
In a surprise move, Canadian telecom giant Telus T announced in its second-quarter earnings report that it slashed its dividend by more than half. Analysts say that while the 55% cut—C$0.18 per share, down from C$0.41—was larger than expected, it doesn’t herald a broader industry trend.
The stock tumbled over 11% to C$13.38 per share from C$15.08 after the announcement on July 31. By comparison, competitor telecom provider BCE BCE remained flat at C$30.41, while Rogers RCI.B dipped only slightly, losing 0.59% through the day to close at C$47.46.
In a capital-intensive industry, leading players like Telus, BCE, and Rogers have been spending heavily as they upgrade their internet offerings from traditional copper-based lines to fiber over the past several years. As a result, their balance sheets became significantly stretched over time, especially combined with the industry’s higher dividend payouts. This has prompted Rogers to hold its dividend steady since 2019 and BCE to cut its dividend by over 50% last year. With Telus’ similarly sized dividend cut this year, no further moves are expected among Canadian telecom companies, analysts say.
“We believe Telus was the last Canadian telecom company that needed to cut its dividend and, therefore, don’t think any more cuts are coming in Canadian telecom,” says Sadiq Adatia, chief investment officer at BMO Global Asset Management. He says the market is not assuming any upcoming dividend cut for Rogers or BCE, and that any further reduction at any of the three leading telecom operators would be viewed as extremely negative for their stocks, reflecting a severe change in strategy, without prior communication to investors.
While analysts attribute Telus’ dividend reset to a slowdown in the telecom industry over the past three years, they aren’t expecting other incumbents to follow suit. “At this stage, a dividend adjustment by one company does not necessarily signal a broader sector trend,” says Jack Nguyen, portfolio manager at Verecan Capital Management. “Rather than viewing Telus as a predictor of what BCE or Rogers will do, investors may view it as a reminder that dividend sustainability ultimately depends on each company’s ability to consistently generate cash flow after funding its investment needs.”
Key Morningstar Metrics for Telus
- Fair Value Estimate: C$20.00
- Morningstar Rating: ★★★★★
- Economic Moat: Narrow
- Sector: Communication Services
Easing Payout Ratios Prevent Further Dividend Cuts
Telus’ hefty cut brings its payout ratio (the percentage of its net income paid to shareholders as dividends) in line with BCE and Rogers, which maintain ratios well under 100%. BMO’s Adatia does not believe more cuts will be needed anytime soon. “BCE is now in a much more comfortable and sustainable payout ratio, even with the incremental capex spend on its data center strategy,” he says. “Rogers operates at the lowest payout ratio in the industry and is at minimal risk of needing to cut its dividend.”
Any future dividend cuts will likely be driven more by company-specific factors, according to Ben Jang, portfolio manager and investment strategist at Nicola Wealth. “For BCE, we would be looking for a surprise capex announcement, worse-than-anticipated deterioration in their core telecom business, or significant underperformance at Ziply [a BCE-owned US-based internet service provider] as signs that the balance sheet and/or cash flows could come under pressure,” he says.
Telecom Sector Slowdowns Force Balance Sheet Repair
The broader sector slowdown has strained telecom players’ balance sheets, explains Morningstar DBRS senior vice president and sector lead of corporate ratings Scott Rattee. He says immigration trends have eased and the wireless landscape has become more competitive. As a result, the telecom industry (and Telus in particular) “has become more cautious in terms of capital allocation and is using capex levels as a lever” to lower payout ratios.
Telus stated in its earnings report that the dividend reduction is expected to generate about C$2.7 billion in cash savings.
Rattee says that so far, Rogers has been improving its financials by deleveraging recently acquired Shaw Communications’ wireless business while successfully monetizing its sports assets.
A Lower Dividend Is Not Necessarily Bad News
Canadian telecom companies have historically attracted investors seeking reliable income. That said, analysts say Telus’ lower dividend yield does not necessarily make for a weaker investment thesis, nor is a higher dividend always attractive. “Ultimately, the key question for investors is not simply how much income a stock provides today, but whether the company can generate competitive total returns over time through a combination of dividends, financial stability, and potential capital appreciation,” says Verecan’s Nguyen. “Each company’s outlook will depend on its own fundamentals, rather than any single dividend decision across the sector.”
Concerning Telus, Nguyen says, “While a dividend cut can initially disappoint income-focused investors, it can also remove uncertainty if the previous payout was viewed as difficult to sustain.”
Telus Stock Remains Under Pressure
Telus’ stock has sharply underperformed relative to the broader market’s double-digit gains this year. The price has collapsed nearly 42% since its 52-week high of C$23.18 in August last year to a low of C$13.45, as of Aug. 11. It is down more than 22% in the year to date, in sharp contrast to the more than 15% gains at both the Morningstar Canada Index and the S&P/TSX Composite Index.
Telus’ shares have been the third-biggest drag on the Morningstar Canada Technology & Communication Services All Cap Target Market Exposure Capped Index this year. As the third-largest stock in the index, with a 3.87% weighting, it detracted 0.81 percentage points from the index’s 1.94-point return this year as of Aug. 10.
What Should Investors Look For?
With Telus’ recent dividend cut and no further dividend resets expected from Canadian telecom operators in the near term, BMO’s Adatia says investor attention will now turn to earnings and capital allocation: “We believe investors are now monitoring for any signs of catalysts for earnings growth acceleration, whether through operational cost discipline, or through monetization of non-core assets.”
Morningstar DBRS’ Rattee will be watching how Telus uses the cash freed up by the dividend cut, especially concerning debt repayment. “I wouldn’t think that 100% of what they save will go immediately to debt reduction,” he says. “Improved financial flexibility may lead to deleveraging quicker than anticipated, but [it is] yet to be proven.” At the same time, by reallocating capital away from “areas that would normally be consuming excess cash, [Telus management] would be able to execute on things like investing in growth areas.”
Earnings Report Prompts Analyst Downgrade
Following Telus’ second-quarter earnings report, Morningstar equity analyst Matthew Dolgin, who covers the stock, lowered its fair value estimate to C$20 per share from C$30. The operator’s second-quarter mobile network revenue rose more than 1% year over year, but it took a C$2.1 billion impairment and lowered its 2026 financial outlook to a range of flat to negative 2%. At C$13.53, the
