TELUS: A Strategic Buy for Income and Growth in a Deleveraging Phase

In an era where investors increasingly prioritize companies with disciplined capital allocation and robust free cash flow (FCF) generation, TELUS Corporation (NYSE: TUS) emerges as a compelling candidate for those seeking a strategic buy during a deleveraging phase. The Canadian telecommunications giant has demonstrated a clear trajectory of strengthening its balance sheet while maintaining its commitment to shareholder returns and strategic reinvestment. This analysis examines TELUS's capital allocation practices, FCF potential, and leverage metrics to argue why it is well-positioned to deliver both income and growth in a post-deleveraging environment.

Free Cash Flow Growth: A Foundation for Resilience

TELUS's free cash flow has shown consistent growth, reflecting operational efficiency and customer acquisition momentum. In 2023, the company reported FCF of $1.8 billion, a 38% increase year-over-year, surpassing its updated annual target. This growth accelerated in Q4 2024, with Consolidated FCF reaching $2.0 billion-a 12% year-over-year increase. By Q3 2025, TELUS had generated $611 million in FCF, marking 8% year-over-year growth.

These figures underscore the company's ability to generate a reliable cash surplus, even amid macroeconomic headwinds.

The company's FCF growth is underpinned by operational efficiencies, cost-to-serve improvements, and strategic monetization of assets such as real estate and copper infrastructure according to its financial results. For 2025, TELUS has set a target of $2.15 billion in Consolidated FCF, a figure that aligns with its long-term deleveraging goals and provides a buffer for reinvestment and shareholder returns.

Capital Allocation Discipline: Balancing Shareholder Returns and Strategic Reinvestment

TELUS's capital allocation strategy is a cornerstone of its appeal. The company has consistently prioritized a balanced approach, allocating FCF to debt reduction, dividend growth, and strategic investments. In 2025, TELUS reaffirmed its commitment to a quarterly dividend increase of 4%, raising the payout to $0.4184 per share. This follows a history of dividend growth, with the company maintaining its industry-leading dividend program even during periods of aggressive reinvestment.

Simultaneously, TELUS has directed capital toward high-impact initiatives. For instance, the acquisition of TELUS Digital is projected to deliver $150 million in annual cash synergies through operational efficiencies. Additionally, the company has increased investments in AI infrastructure, with Q3 2025 capital expenditures (excluding spectrum licenses) totaling $652 million-a 2% year-over-year decrease. This disciplined approach ensures that TELUS remains at the forefront of technological innovation while avoiding overleveraging.

Strategic partnerships, such as the formation of Terrion with La Caisse, further enhance TELUS's capital efficiency. By outsourcing tower operations to this joint venture, TELUS reduces its capital intensity and accelerates deleveraging. Such moves highlight the company's ability to optimize its balance sheet while maintaining competitive differentiation.

Leverage Metrics and Deleveraging Progress

TELUS's deleveraging strategy is both ambitious and achievable. As of Q3 2025, the company reported a net debt-to-EBITDA leverage ratio of 3.5 times, down from 3.9 times at the end of 2024. This progress aligns with its long-term target of reducing the ratio to 3.0 times by 2027. The company's FCF growth, coupled with cost synergies from recent acquisitions and operational efficiencies, provides a strong tailwind for achieving this goal.

TELUS's debt reduction is further supported by its FCF projections. With a 2025 FCF target of $2.15 billion and capital expenditures of $2.5 billion according to its 2024 scorecard, the company is allocating a significant portion of its cash flow to strategic investments while maintaining a healthy debt reduction pace. This balance is critical in a deleveraging phase, where excessive focus on debt reduction can stifle growth, and overinvestment can jeopardize financial stability.

Why TELUS Stands Out in a Deleveraging Phase

TELUS's combination of FCF resilience, disciplined capital allocation, and measurable deleveraging progress makes it an attractive investment for income-focused and growth-oriented investors alike. The company's ability to generate consistent cash flow while reinvesting in high-return initiatives-such as AI infrastructure and network digitization-ensures long-term value creation. Meanwhile, its dividend growth program provides a reliable income stream, supported by a payout ratio that remains well within sustainable limits.

For investors navigating a deleveraging phase, TELUS offers a rare blend of stability and growth potential. Its strategic use of FCF to reduce leverage, reward shareholders, and fund innovation positions it as a defensive yet dynamic play in a post-crisis market.