1 Outstanding Canadian Dividend Stock Down 10% to Buy and Hold for Years 

Most dividend stocks are near their highs, but those in the telecom sector are in the middle of a crisis. The current scenario has changed the world for Canadian telcos and led big names scrambling for cash flows to pay dividends. First, BCE (TSX:BCE) paused and slashed its dividend, and then amended the dividend-reinvestment plan (DRIP) offering from giving treasury shares at a 2% discount to buying traded shares at the average market price.

Similarities between these Canadian dividend stocks

Telus (TSX:T) is walking in BCE’s footsteps. It has put a pause to dividend growth after growing the upcoming January 2026 dividend by 3.8% year over year to $0.4184. This pause will likely stay till 2028. Moreover, Telus is also phasing down its discounted DRIP from a 2% discount in 2025 to 1% in 2027, and then to no discount in 2028. That doesn’t mean DRIP has ended. It only means that DRIP shares will be purchased at market price. Considering the discount at which Telus shares are trading, it will make up for the end of the 2% discount.

Why is there such a drastic change in dividend policies that were pretty generous previously? The reason is a structural change in the industry that has altered the long-term cash flow of the companies. This happened with oil pipeline stock Enbridge, which suspended its DRIP in 2018.

Why is this Canadian dividend stock falling?

The unique strength of the large telcos was their monopoly in the market due to their extensive network infrastructure. The telcos could command a higher price for their strong network, which small competitors could not offer. However, a regulatory change altered this scenario. It allowed competitors to access each other’s network for a small fee, and that too after BCE and Telus had invested billions of borrowed money in building the 5G infrastructure. Small players like Quebecor benefited as they could offer high-speed internet at a very low price because their balance sheet was not leveraged like BCE and Telus.

The price war lowered the return on investment and reduced their market share. The two telcos are not earning enough returns to repay the debt and also give higher dividends. The capital structure has skewed toward debt, and equity shareholders are facing the brunt.

Debt has been pulling down the share price. Hence, Telus is lowering its net debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) to the target range of 2.2- 2.7. So far, it has sold a 49% stake in Terrion to reduce the leverage ratio to 3.5, but now aims to reduce this ratio to three by the end of 2027. That requires more free cash flow to be diverted towards debt repayment.

The dividend-growth pause comes as welcome news for long-term investors, as a reduction in debt will increase the equity’s share. Once the balance sheet strengthens, the company may resume dividend growth.

Should you buy Telus stock at the dip?

Many investors have been fearful and exiting the telecom sector. However, a stronger balance sheet could see a recovery in Telus’s share price in the near term. BCE stock price jumped 18% after the dividend cut in May 2025.

BCE had to slash dividends as its payout ratio had been above 100% for four years, which was unsustainable. With Telus, the payout ratio is 75%, within the guided range of 60-75%. And a dividend-growth pause means it can continue paying its existing dividend comfortably. Moreover, Telus expects to grow its free cash flow at an average annual rate of 10% by reducing capex and debt. It means the payout ratio could fall below 75% in the coming two years, giving Telus the flexibility to resume dividend growth.

You could consider investing in Telus today to lock in an 8.9% yield and 15-20% capital appreciation.

The post 1 Outstanding Canadian Dividend Stock Down 10% to Buy and Hold for Years  appeared first on The Motley Fool Canada.

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More reading

• 2 Dividend Stocks I’d Gladly Buy and Hold for Life
• 9% Yield: Is Telus’s Dividend Safe?
• What’s Going On With Telus’ Dividend?
• 3 TSX Dividend Stocks That Just Raised Their Payouts
• Transform Your TFSA Into a Cash-Creating Machine With $15,000

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and TELUS. The Motley Fool has a disclosure policy.