TELUS Corporation (TU): A Dividend Dynamo in Canada's Telecom Sector

TELUS Corporation (TU) has long been a stalwart of Canada's telecom landscape, but its Q1 2025 results reveal a company pivoting aggressively toward high-growth sectors while maintaining its reputation as a dividend powerhouse. With a 7% dividend hike, record customer growth, and strategic moves to reduce leverage, TU is positioning itself as a rare blend of income security and growth potential in an industry rife with competition and margin pressures. Let's unpack why this Canadian telecom giant could be a top pick for income-focused investors.

Dividend Growth: A Program with Teeth

TELUS's dividend increase to $0.4163 per share marks the latest step in its extended dividend growth program, which now targets 3-8% annual hikes through 2028. This isn't just a temporary boost: the company's free cash flow (FCF) rose 22% to $488 million in Q1, driven by lower capital expenditures and higher EBITDA. With FCF projected to hit $2.15 billion in 2025, TU has the financial backbone to sustain its dividend ambitions.

The tells the story: a consistent yield hovering around 8% (well above the S&P 500 average) and a payout ratio kept under 60%, leaving ample room for future increases. Management's discipline—reducing leverage to 3x by 2027 from 3.8x—ensures this dividend machine won't overextend itself.

Customer Growth: The Engine Behind the Engine

TELUS added 218,000 total customers in Q1—the strongest start to a year in its history—highlighting its success in bundling services. Mobile and connected device growth (168,000 additions) underscores the shift toward IoT and 5G-driven demand. The decline in residential voice customers (13,000) is a predictable casualty of digital migration, but the real story is the rise in internet (21,000), TV (27,000), and security/automation (15,000) services. These segments are sticky, high-margin propositions that reduce reliance on legacy voice revenue.

Health Tech: The New Growth Frontier

TELUS Health's 12% revenue growth and 30% EBITDA expansion are the crown jewels here. The acquisition of Workplace Options—serving 88 million employees globally—has turbocharged its health and wellbeing offerings. Combined with synergies from past deals (like LifeWorks, which now delivers $376 million in annual savings), this segment is a cash flow juggernaut.

The shows how health tech is becoming the company's most dynamic revenue stream. With global healthcare lives up 7% to 76.5 million, this division isn't just a side hustle—it's a pillar of future growth.

Leverage Reduction: A Prudent Play for Long-Term Health

TELUS's net debt/EBITDA ratio is on track to fall to 3x by 2027, thanks to a multi-pronged strategy:
- Debt Refinancing: A $1.6 billion hybrid debt offering in April 2025 secured equity credit on 50% of proceeds, lowering interest costs.
- Asset Sales: Monetizing non-core assets and real estate will further reduce debt without sacrificing core operations.
- CapEx Discipline: Total capital spending dropped 19% year-over-year, as TELUS shifts to partner-built fiber networks to contain costs.

This deleveraging isn't just about safety—it's about flexibility. Lower debt means more room to invest in growth areas like health tech or acquire new assets without straining balance sheets.

Risks and the Bear Case

No investment is without risks. TELUS faces margin pressure in its traditional telecom segments (fixed-line voice and TV), and competition from Rogers and BCE remains fierce. Slower-than-expected 5G adoption or regulatory hurdles in healthcare could also crimp growth. However, TELUS's low postpaid churn rate (0.84%) and its customer-centric bundling strategy suggest resilience. Meanwhile, the Workplace Options acquisition's global scale provides a buffer against domestic market saturation.

Investment Thesis: TU as a "Buy and Hold" Income Play

TELUS checks all the boxes for income investors seeking stability and growth:
1. Predictable Cash Flows: A dividend yield near 8% with a disciplined payout ratio.
2. Diversified Revenue Streams: Telecom + health tech creates dual engines of growth.
3. Debt Management: A clear path to 3x leverage by 2027 reduces refinancing risks.

The shows TU has outperformed on both dividends and growth. While near-term volatility is possible, the long-term thesis is strong: TU is a telecom stock with a health tech tailwind, making it a rare blend of income and innovation in a crowded sector.

Final Take: TELUS is no longer just a telecom company—it's a health tech disruptor with a dividend that keeps growing. For income investors willing to look beyond the "old school" telecom label, TU offers a compelling mix of yield, growth, and financial discipline. The risks are manageable, and the upside in both dividends and valuation makes it a standout play in Canada's telecom landscape.