Q: I have held T for years and have been content with its solid dividend, stability and some growth. Clearly not happy with current events. I am still up 18% in a non-registered account. Would you be inclined to hold the course and hope for a turn around in the next several quarters? Or do you believe - even after interest rates peak - that the combination of growing competition and onerous government regulation mean the telco will continue to struggle? If the latter, can you recommend a replacement? I'm wrestling with this as I want a dividend >4%, a bit of growth and low volatility, but am overweight in Utilities and Finance, where I would be most likely to get this. What do you think of binning T and shifting the funds to Energy (ENB?) or Real Estate (DIR.UN?)? Alternatively, is there another Communications stock you might recommend (Canada or US) that fit my criteria? Thank you.
5i Research Answer:
We think T will ultimately be OK, but needs to work through its TIXT problem, execute better, and get back on the growth track that served it well for decades. We do think lower rates will help a lot. The dividend is well covered, with payout (12 months) at barely 25%. Sentiment is ugly, so any positive news could be a good catalyst. With taxes to pay, and a 6%+ yield, we would be inclined to hold. The sector is weak in both countries, so we are not so sure a company shift would work well. We like ENB and DIR.UN, but neither are perfect, and with taxes applicable, they would need to do extra well to offset the tax hit.