Telus Halts Dividend Increases Amid Financial Concerns

Telus Corp announced on November 22, 2023, that it will pause its dividend growth plan in a significant shift from its previous commitment to increase payouts. This decision comes as analysts and investors raised concerns about the sustainability of the company's dividend amid pressures to reduce its $25.7 billion long-term debt.

CEO Darren Entwistle stated that the current quarterly dividend of 41.84 cents per share will remain unchanged until the company's share price better reflects its growth potential. The company's financial health has been under scrutiny, with a 46 percent drop in share price since 2022 highs and a 15.8 percent decrease from the same time last year.

Just two weeks prior, on November 20, CFO Doug French had assured investors that there would be no changes to the dividend growth plan, emphasizing that nothing had changed in operations. However, the board of directors regularly reviews capital allocation strategies, which allowed for this abrupt decision to pause dividend increases.

Analysts from J.P. Morgan and Veritas Investment Research questioned Telus's cash flow projections, estimating that the payout ratio could exceed 100 percent in the coming years, contradicting Telus's prediction of a 75 percent ratio by the end of 2025.

In response to these financial pressures, Telus aims to enhance its financial discipline and shareholder value. The pause on dividend increases is expected to ease some pressure from short sellers, as short sales of Telus shares increased significantly in recent months, reaching 50.4 million shares on the Toronto Stock Exchange by mid-November.

Telus's situation mirrors that of other Canadian telecoms, like BCE, which halved its dividend in May due to unsustainable yields. The company previously adjusted its growth target, reducing it to between 3 and 8 percent annually from 2026 to 2028 to achieve a net-debt-to-EBITDA ratio of three times by 2027.

Alongside the dividend pause, Telus reported an expected free cash flow of $2.15 billion in 2025 and a compound annual growth rate of at least 10 percent from 2026 to 2028. The company continues to explore deleveraging strategies, including selling real estate and copper assets and potentially issuing more hybrid debt.

This decision marks a pivotal moment for Telus as it navigates financial challenges in a competitive telecom landscape, aiming to stabilize its operations and restore investor confidence.