T provides necessary services with a stable, predictable earnings stream. Historically, T has had a solid track record of consistent and growing dividend payments. The debt level is quite high relative to historical averages and industry peers, currently standing at 5.5x net debt/EBITDA (for reference, BCE’s debt level is around 3.9x and RCI.B’s is 4.5x).
Free cash flow is more than enough to cover the dividends ($2.2B FCF vs. $1.6B in dividend payments). Overall, we think the company can likely maintain its dividend payment. Given the competitiveness and capital intensity of the industry, investors need to watch out for a significant increase in capex projects, which could potentially lead to a dividend cut (similar to BCE). A lot of bad news is likely priced in at these levels but we also wouldn't expect fireworks from Telus in the near-term. If looking for something that should have some downside protection and a good yield, we think it is fine.