TELUS's Dividend Sustainability: A High-Yield Bet Amid 5G Expansion and Strategic Capital Allocation

For income-focused investors, TELUS (TU) has long been a cornerstone of Canadian dividend growth strategies. With a 2025 yield of approximately 5.2% and a history of consistent payouts, the telecom giant's recent financial performance and capital allocation decisions suggest its dividend sustainability remains robust despite aggressive 5G investments. This analysis examines TELUS's financial resilience, strategic reinvestment, and credit profile to argue why it remains a compelling high-yield opportunity for long-term investors.

Strategic Capital Allocation: Balancing Growth and Shareholder Returns

TELUS's 2025 capital expenditure target of $2.5 billion reflects a disciplined approach to infrastructure development, focusing on 5G network optimization and digital innovationTELUS reports operational and financial results for second quarter 2025^[1]. This follows 2024 spending of $2.4 billion, which slightly undershot its $2.6 billion target but still supported key initiatives like PureFibre broadband expansion and AI-driven smart home energy management2024 scorecard and 2025 targets - TELUS^[2]. Crucially, the company has offset capital intensity through asset monetization, such as the $1.26 billion deal with La Caisse to form wireless tower operator Terrion. This transaction is projected to reduce leverage by 0.17 times on a pro forma basis, accelerating debt reduction while preserving network leadershipS&P Global Ratings affirms TELUS at ^[3].

The telecom industry's broader trend of declining capital intensity—global capex expected to fall at a 2% CAGR through 2027Telecom capex to decline at 2% CAGR through 2027, says Dell’Oro Group^[4]—further eases pressure on TELUS's balance sheet. By aligning its 2025 capex with industry shifts, TELUS balances growth with fiscal prudence, ensuring reinvestment does not compromise its ability to fund dividends.

Financial Resilience: Liquidity, Leverage, and Credit Metrics

TELUS's leverage ratio stood at 3.7 times net debt to EBITDA in Q2 2025, down from 3.9 times in Q1, as the company progresses toward its 2027 target of 3.0 timesTELUS reports operational and financial results for second quarter 2025^[5]. While its adjusted debt-to-EBITDA ratio remains above 4.0 times—a threshold that triggered S&P Global's March 2025 downgrade to "BBB-"—the stable outlook from both S&P and Moody's (Baa2) underscores confidence in its deleveraging trajectoryMoody's Investors Service affirms TELUS at ^[6]. The company's $2.15 billion free cash flow target for 2025, supported by 11% Q2 growth, provides ample runway to service debt and fund dividendsTELUS reports operational and financial results for second quarter 2025^[7].

Liquidity remains a strength, with $6.74 billion in current assets as of June 2025, despite a current ratio of 0.86TELUS Current Ratio 2010-2025 | TU - Macrotrends^[8]. This is mitigated by TELUS's access to deep credit markets and its focus on long-term debt maturities. For context, its 2025 free cash flow of $2.15 billion exceeds its dividend payout of $1.66 billion (based on the $0.4163 quarterly rate), yielding a sustainable payout ratio of 77%.

Dividend History and Future Outlook

TELUS's dividend growth streak, now spanning over two decades, reflects its commitment to shareholder returns. The 2025 hike to $0.4163 per share—a 3.8% increase from $0.3999 in 2024—aligns with its historical pattern of annual raisesDividend Information, Investor Relations - TELUS^[9]. This growth is underpinned by strong segment performance: TTech and TELUS Health drove 4% Adjusted EBITDA growth in Q2 2025, while TELUS Digital's external revenues added further momentumTELUS reports operational and financial results for second quarter 2025^[10].

Critically, the company's dividend sustainability is reinforced by its focus on high-margin services. For example, TELUS Health's expansion into next-generation healthcare solutions and TTech's AI-powered platforms are generating recurring revenue streams that insulate the business from commodity pricing pressures.

Industry Trends and Competitive Positioning

The telecom sector's post-5G normalization is a tailwind for TELUS. As global capex declines post-2024, carriers face less pressure to overspend on infrastructure, allowing TELUS to allocate capital more efficiently. Its PureFibre rollout—targeting 2 million homes by 2027—positions it to capture long-term ARPU growth in broadband, a segment with higher margins than traditional mobile servicesTELUS reports operational and financial results for second quarter 2025^[11].

Competitively, TELUS's 0.9% postpaid mobile churn rate in Q3 2024 (vs. industry averages of 1.2–1.5%) highlights its customer retention strengthEarnings call: TELUS reports strong Q3 growth and dividend hike^[12]. This, combined with its diversified revenue base (mobile, broadband, health, agriculture), reduces reliance on any single business line, enhancing resilience during economic downturns.

Risks and Mitigants

The primary risk lies in TELUS's leverage profile. While its debt-to-EBITDA ratio is expected to remain above 3.75 times through 2026–2027Research Update: Telus Corp. Ratings Lowered to 'BBB-' from 'BBB'^[13], the company's asset sales, free cash flow generation, and conservative capex targets mitigate downgrade risks. Additionally, its stable credit outlook from S&P and Moody's suggests rating agencies view its deleveraging plan as credible.

Conclusion: A High-Yield Dividend Champion

TELUS's combination of disciplined capital allocation, robust free cash flow, and strategic reinvestment in high-growth verticals makes it a standout for income investors. While leverage remains elevated, the company's track record of balancing growth with shareholder returns—evidenced by its 20-year dividend hike streak and recent 3.8% increase—demonstrates a commitment to sustainability. For long-term investors seeking a high-yield stock with durable cash flows and a clear path to deleveraging, TELUS remains a compelling choice.