Forget Telus: A Cheaper Dividend Stock With More Growth Potential

Shares of telecom icon Telus (TSX:T) have been the talk of the town in recent months, most notably because the already shockingly high dividend yield has surpassed the 10% mark. Indeed, the huge yield just seems to keep getting larger with every down day for Telus. And what looked like a somewhat secure dividend now looks like one that’s bound to be cut sooner or later. At the time of this writing, the hard-hit telecom yields 11.31%.

That looks unsustainable, and while Telus’s managers are doing their best to turn things around behind the scenes while maintaining that commitment for a while longer, I just think that something more than a dividend growth pause, which is currently being implemented, might be needed for the firm to get back up on its own two feet. While the payout isn’t going to be cut tomorrow, the cash dividend coverage ratio is getting up there, as you’d imagine.

Telus’s dividend might be safe (for now), but shares can’t find a bottom

Cutting jobs and moving the bar lower on capital expenditures might help buy considerable time for that sky-high dividend, but, at the end of the day, investors are 100% right to be skeptical. Nobody wants to be caught holding a stock that nosedives after a dividend reduction (perhaps one in excess of 50%) is announced. Of course, Telus has options that can help keep that dividend on a better footing. In the year ahead, free cash flow seems to be looking up.

And that bodes well for the bottom-fishers looking for a juicy payout. And since the heaviest lifting on infrastructure upgrades is all done, the firm might be able to surprise investors by marching ahead without having to break the hearts of income investors. Of course, a yield above 11% screams imminent cut. But, in my humble opinion, I think the odds that the dividend will remain in a year from now are high. If things go right in the coming year? Maybe the dividend’s survival rate moves higher. Time will tell.

Pembina Pipeline

For now, I prefer a name with less in the way of negative momentum. Shares are down 18% year to date. At the same time, other dividend growers are surging. Pembina Pipeline (TSX:PPL) is an underrated 4.2% yielder (I know that’s far less than 11.31%) that’s firing on all cylinders, with a modest multiple and impressive tailwinds at its back as the firm helps the nation move ahead with energy infrastructure.

With AI data centres coming online (most recently, a big one was reported to be built in the province of Alberta), the grid will need to catch up. And I don’t think the midstream players, specifically those that transport natural gas and crude, are appropriately priced.

On the surface, PPL shares look modestly priced at 25.5 times trailing price to earnings (P/E). However, in my view, the stock still has room for appreciation, even after a 28% jump in 2026 thus far. The pipelines are the place to be this year, and I don’t see that changing anytime soon, especially as Pembina inks more ambitious power deals with new data centre projects.

The post Forget Telus: A Cheaper Dividend Stock With More Growth Potential appeared first on The Motley Fool Canada.

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More reading

• A Value Stock With a Dividend Yield Over 11% to Buy Near 52-Week Lows
• BCE vs. Telus: Which Telecom Belongs in Your TFSA?
• 1 Canadian Dividend Stock Down 24% to Buy and Hold Forever
• BCE vs. Telus: Which Telecom Belongs in Your TFSA?
• How to Structure a $50,000 TFSA for Practically Constant Income

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Pembina Pipeline and TELUS. The Motley Fool has a disclosure policy.