Telus is the second largest holding in the Dividend Beginner portfolio. Bell is a new interest of mine.
Telus is one of the few stocks I’ve come across in the Canadian markets that fits all Five of the Dividend Beginner’s stock picking criteria.
I’ve purchased shares in Telus three times over the past year, and it currently accounts for 9.5% of my total portfolio value. That’s also my entire exposure to the telecommunications sector, which is one of my favourite sectors. After all, cell phones and mobile plans are basically requirements in today’s society – every one and every new person will need at least one cell phone going forward.
My View on The Telecom industry
In addition to that, the investments the Three Big Telecoms have put into infrastructure secure their top spots in the sector. The oligopoly they’ve built seems to be endorsed by the Canadian Radio-Television and Telecommunications Commission (CRTC) further solidifies their position, at the expense of the poor Canadian who’s gouged left and right, even though they’re “supposed” to be working for the Canadian citizen.
It’s the crude reality of mobile in Canada. If one is fortunate enough to possess the cash flow to invest, it’s prudent to invest in one of these companies which have high barriers to entry. We expect these companies will make money and continue to be profitable; and as a result return that value in the form of capital gains or dividends.
These telecom companies continuously increase rates and add fees, furthering boosting their top line. Taking that into consideration, the profits earned by these companies go towards paying dividends. As an investors, those dividends can go towards paying your own cell phone bill.
The Big Three Telecoms
There are many instances where one is told to pick one stock within a sector or industry as your best bet, and to then invest your money there. If you made the right choice, your money will grow exponentially in comparison to if you had picked the laggards. For the past year, Telus has been the laggard of the bunch. In the past 52-weeks, here are the returns on the Big Three Telecoms.
I’m sure you all know that when I first invested in Telus, I was torn between buying shares in Rogers or Telus. Unfortunately, my decision cost me about a 20% return. I don’t regret it though. My decision in buying Telus that while ago was due to their high level of customer satisfaction, versus Rogers who was detested by their customers.
I also looked at the dividend history and growth potential, and Telus won. I think Telus may always win that one, especially with their reliable dividend growth plan, which they have just renewed through 2019. Telus plans to raise their dividend by 7% to 10% for the next three years.
Currently I’ve been attracted to Telus due to their dedication to investing in their infrastructure and believe they are very forward-looking in their decisions. Despite under performing the past year, I believe Telus is poised for the largest future growth. Unfortunately, with Shaw Communications acquiring Wind Mobile, they’ll be fighting Telus for market share in Western Canada.
Due to the under performance of Telus and the great returns generated by the other two telecoms, I’ve decided to look into Bell as an alternative and to diversify my telecom exposure. I’m considering Bell due to their similar yield, large market cap, significant history, and market share. Bell is worth more than both Telus and Rogers combined.
Now that we’ve established reasons for looking into diversifying our Telecom exposure with another of the Big Three, let’s look at the head to head challenge of Telus vs Bell.
Is Telus or Bell the Better Investment?
Let’s look at the hard numbers both stocks boast. We’ll take a look at the most important stock metrics I look at when deciding whether to invest in a company or not. Fortunately, both of these stocks are part of the Canadian Dividend All-Star List, a compilation of stocks from the TSX which have increased dividends for 5+ years.
One quick glance and it’s easy to see all the green for Telus. The numbers are much better than Bell’s, yet Bell still seems to have better returns and margins. The metrics in a lighter green are the ones measured in the Dividend Beginner stock picking criteria. The only one out of the five which wasn’t lit up is the dividend yield, since they both currently have the same yield of 4.5%, a good deal higher than the required 2%. It’s smaller than my most current deals where the stocks yield 5% and pay monthly, but Telus is an incredible stock which you can hold and sleep well at night.
Telus beats on trailing and forward price-to-earnings, in it’s 12 year dividend growth streak, significantly smaller payout ratio, it’s double digit dividend growth rates and the resulting expected 10-year YOC as a result, in addition to it’s forecasted revenue growth and price target growth. Not to mention, while it’s unfortunate it’s trading at a premium to its 5-year average PE, it still is a much smaller PE than Bell is selling at.
Telus is committed to returning value to their shareholders and I really appreciate them for it. It makes me enjoy investing in them. They have committed to their dividend growth plan, which is one of my all-time favourite things to see in a stock. They have also just announced that they will be purchasing 1.6 million shares through their normal course issuer bid to cancel them and artificially boost returns per share. I think it’s something the company needs with their recently slowed growth, and I believe they’re purchasing shares at a good value.
What’s interesting too is Bell will be purchasing Manitoba Telecom Services Inc. (MTS) and selling one third of the wireless subscribers to Telus as well as one third of the dealers MTS owns. I believe both companies will be able to profit off this deal (at the price of the citizens of Manitoba who were with MTS).
Bell seems to be doing better with their quarterly results, as a lot of their business metrics have been increasing while Telus appears to be having some trouble there. With the sale of Telus International, I think they’re trying to get some help and branch out. I think the day will come where Telus’ stock price will more accurately reflect it’s prowess in the telecom industry, while I think Bell is fully valued as is, so much so that Thomson Reuters’ analyst have marked it’s price target below what the stock price currently is.
One other great thing about Bell is that they often post earnings surprises which are positive, whereas Telus has recently seen a lot of negative surprises in their earnings. Considering this is a decent indication of whether a stock price may go, Telus has stalled while Bell has grown.
I’ve expressed my adoration for the telecom industry, which has become a necessity in the world of today. In addition to that, with the strict regulations in Canada, the current Big Three Telecoms are here to stay and flourish (while gouging their customers). Either way, you will most likely be a victim of The Big Three in some way or another. Instead of being just a victim, I believe it makes sense to take advantage of this oligopoly in your own way: by investing in this important sector that’s here to stay and innovate.
Now both Bell and Telus are great choices (in fact, they all are) – but which is the better one for the investor? Now this depends on whether you want more growth or value, and that’s my opinion. With the returns as they are, I believe Bell can possibly see more growth in the near-term. I think Telus is more of a value-play where they consistently return value to the share holders at the expense of company growth. However, Telus invests heavily in their infrastructure and I believe it’s a sitting duck as they build up their business. I believe it is poised for a lot of future growth once they can get everything together. While waiting, collect a good and growing dividend and the share buy back returns.
Given the comparable stock metrics, the dividend growth plan, and the customer and shareholder friendly values of Telus, my vote goes to Telus.
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What do you think of Telus vs Bell? Which positions do you own? Which positions do you want to own? What do you think about Rogers? What stocks should I pit against each other next?