TELUS (TSE:T) Is Increasing Its Dividend To CA$0.34

TELUS Corporation (TSE:T) will increase its dividend on the 4th of July to CA$0.34. The announced payment will take the dividend yield to 4.1%, which is in line with the average for the industry.

See our latest analysis for TELUS

TELUS Doesn't Earn Enough To Cover Its Payments

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

EPS is set to fall by 5.9% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 120%, which is definitely a bit high to be sustainable going forward.

TELUS Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was CA$0.55, compared to the most recent full-year payment of CA$1.35. This implies that the company grew its distributions at a yearly rate of about 9.4% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 3.1% per annum over the last five years, which admittedly is a bit slow. The earnings growth is anaemic, and the company is paying out 103% of its profit. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

TELUS' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think TELUS' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for TELUS you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.