All it Takes Is $3,000 in Telus to Generate Hundreds in Passive Income

The dividend yield on TELUS (TSX:T) stock is fast approaching 11.4% annually. This bloated yield follows a recent round of share price declines that has hit Canadian telecommunications sector stocks, even as incumbents’ revenue and cash flow prospects seem to have stabilized following eased price-competition during the just-ended second quarter.

I belong to the camp that believes that traders have erroneously punished Canadian telecom stocks as speculation surrounding SpaceX’s ambitions to disrupt the telecommunications industry in the United States hit fever pitch during its IPO. Investors who share similar sentiments may be tempted to scoop the ultra-high yield on TELUS stock to earn juicy quarterly passive income payouts as the company builds cash flow and fortifies its balance sheet in 2026 after a pause on dividend growth.

It takes a $3,000 investment in T stock for a passive income seeker to generate more than $341 in annual dividend income, at current market conditions. The simple math to earn hundreds in passive income from TELUS is as depicted below.

How much a $3,000 investment in TELUS generates in passive income

A $3,000 investment in TELUS stock today may earn $341.09 in annual passive income, as computed below.

StockRecent PriceInvestmentNumber of SharesDividend Per ShareQuarterly PayoutTotal Annual DividendTELUS (TSX:T)$14.69$3,000204$0.42$85.27$341.09

According to the Rule of 72, an 11.4% dividend yield may help double your investment position in a little over six short years, with full dividend reinvestment. This assumes that share prices remain steady at current levels.

However, given that a double-digit dividend yield, however safe it may be, is merely market feedback to management that the dividend isn’t appreciated, and may rationally need a trim, or a substantial cut, the math changes a bit.

Could TELUS cut its dividend?

TELUS guides for $2.45 billion in free cash flow for 2026. It has capacity to sustain its current dividend. But given the bloated yield, the cash flow could be better deployed elsewhere. Allow me to speculate on a potential dividend cut on TELUS stock in the near future, if stock prices don’t rebound fast enough.

The combination of a new CEO and a new Chief Financial Officer (CFO) increases the chances for a strategic shift at TELUS, especially regarding capital investment decisions and dividend payout rates.

New CEO Victor Dodig has just assumed office on July 1, following former CEO Darren Entwistle’s retirement after a 26-year leadership tenure. A former CEO of Canadian Imperial Bank of Commerce (CIBC), the former banker is accredited with strategically and financially transforming the chartered bank until his “retirement” in 2025. This new CEO installment was concurrent with new CFO Gopi Chande taking over from retired CFO Doug French who had served for 30 years.

The new team may come up with fresh ideas and strategies to take TELUS forward, and it’s possible that this may include a dividend cut that respects the market’s signal.

Could a 50% dividend cut hurt?

Assuming a 50% dividend cut on TELUS feels like an increasingly responsible thing to do right now. It doesn’t seem to make much financial sense for the new leadership team to keep pushing a double-digit dividend to an investor base that has already deeply discounted the payout. The retained cash flow could be more useful in new accretive projects.

TELUS has about 1,574,521,974 issued and outstanding shares, at writing. It needs to generate more than $2.6 billion in free cash flow to sustainably cover annual dividends, before any cash savings from dividend reinvestments (DRIP). A 50% dividend cut could save the company nearly $330 million cash flow every quarter, and reduce the dividend “obligation” to about $1.3 billion annually.

While the dividend cut may reduce the current yield to about 5.7% annually (in line with peers), the financial reset may significantly transform TELUS’s investment case.

With an additional $1.3 billion available to pay down debt or invest in new growth projects (like artificial intelligence (AI) datacentres), TELUS could deleverage faster, grow its share of Canadian sovereign AI spending, or repurchase shares at discounted prices. The net results may translate into a share price recovery that soothes current investors’ financial souls.

The post All it Takes Is $3,000 in Telus to Generate Hundreds in Passive Income appeared first on The Motley Fool Canada.

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More reading

• 2 Canadian Dividend Giants to Buy With Rates on Hold
• A 11.3% Passive-Income Stock I’d Put My Whole TFSA Contribution Into
• What’s the Deal with Rogers’s Dividend?
• What’s the Deal with Telus’s Dividend?
• Is Telus’s Dividend Still Worth Counting On?

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.