Telus Cuts Dividend 55% to Fund Debt Reduction

Telus Corp. (TU) has reduced its quarterly dividend by 55% to 18.75 cents per share from 41.84 cents, a move the company says will generate approximately $2.7-billion in cash savings through 2028. These funds will be allocated to lowering its long-term debt.

Dividend and Financial Guidance Adjustments

The dividend cut, effective with the next payment, is part of a broader financial reset under new CEO Victor Dodig, who took over from Darren Entwistle at the end of July. The company also revised its full-year 2024 outlook: revenue is now expected to be flat or decline up to 2%, compared with prior guidance of 2% to 4% growth. Adjusted EBITDA is projected to fall 2% to 4%, versus earlier expectations of growth. Cash flow for the year is now forecast at $1.8-billion, down from the previous estimate of $2.45-billion.

Market Reaction and Context

Analysts had widely anticipated a dividend reduction, given Telus's share price decline of nearly 46% over the past five years and a yield that had climbed to 11.6% before the cut. TD Cowen's Vince Valentini noted the guidance cuts were "much worse than expected," while Bank of Nova Scotia's Maher Yaghi called the dividend cut "the right one" but added that the size of the guidance reduction shows it was not discretionary.

Telus also announced it will eliminate the discount on its dividend reinvestment plan (DRIP), effective Oct. 1. Previously, shareholders could reinvest dividends into shares at a discount to market value.

Strategic Shift Under New Leadership

Dodig, known for turning around CIBC's performance, is reshaping Telus's strategy amid industry headwinds, including slower population growth and increased wireless competition. Analysts have suggested possible divestitures of non-core assets, such as its venture portfolio, real estate, or part of its health business. Valentini estimated that selling all non-core assets could raise over $8-billion, though he called that an "extreme scenario."

Telus's dividend cut follows a similar move by rival BCE Inc., which slashed its payout by 50% last year. For Telus, the reduction marks a departure from its long history of dividend growth, which it had paused in November 2023.

What it means for income investors

Telus's dividend reduction and guidance cuts reflect a challenging operating environment and a strategic pivot toward debt reduction. The company's dividend history now shows a significant reset, and its future payout growth will depend on successful execution of its new financial plan.

Reporting based on: The Globe and Mail. Figures verified against market data where available.