TELUS' (TSE:T) Dividend Will Be Increased To CA$0.33

TELUS Corporation (TSE:T) has announced that it will be increasing its dividend on the 4th of January to CA$0.33. Based on the announced payment, the dividend yield for the company will be 4.4%, which is fairly typical for the industry.

View our latest analysis for TELUS

TELUS Doesn't Earn Enough To Cover Its Payments

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, TELUS was paying a whopping 161% as a dividend, but this only made up 32% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Earnings per share is forecast to rise by 18.4% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 120%, which is a bit high and could start applying pressure to the balance sheet.

TELUS Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2011, the first annual payment was CA$0.53, compared to the most recent full-year payment of CA$1.31. This means that it has been growing its distributions at 9.6% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

TELUS May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though TELUS' EPS has declined at around 4.6% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for TELUS that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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