One TSX Dividend Stock That Might Have More Upside in 2026 Than Most People Expect

Dividend stocks are a good entry point when they are down, as you can lock in a higher dividend yield. Among good dividend payers, energy and real estate stocks surged in 2026, but telecom stocks stayed low. Among them, Telus Corporation (TSX:T) stock fell 5.5% to a new low of around $16 as fears of a dividend cut grew. This stock will continue to remain low as fears keep investors on their toes.

Are fears of a dividend cut something to be worried about?

If you think a possible dividend cut is negative news, let’s back-test this theory. Some dividend cuts signal financial trouble, while others are meant to strengthen the balance sheet.

Several companies slashed dividends in 2020 and 2021 as their cash flows took a hit from the pandemic. Choice Properties, RioCan REIT, Altagas, Suncor Energy, Freehold Royalties, and Brookfield Renewable were among them. Dividend cuts help them free up money to improve financial flexibility and reinvest in growth. Freehold bought land in Pembina Basin, which overturned its fortune. Suncor Energy used the freed-up cash to sustain the business and lower its costs. The outcome for all of them was share price and dividend growth once the rough patch was over.

Sometimes, you have to take a step back and rest to move several steps forward at a faster pace.

Telus is among such dividend stocks.

Telus stock might have more upside in 2026 than most people expect

Telus’s stock price dip is more of a trader’s phenomenon and short-term focus. However, if you look at the telecom stock from a long-term perspective, you will see value.

A straightforward way to measure a company’s dividend capacity is to look at its dividend payout ratio, which is dividend payments divided by free cash flow (FCF). Telus offers a dividend reinvestment plan (DRIP) where 34% of its dividend payments sit. In a DRIP, Telus doesn’t pay cash dividends but instead pays in stock. This has increased its outstanding shares.

Excluding the DRIP, Telus has a payout ratio of 75%, but after adding the DRIP, this ratio jumps to 110%. Many forget that the dividend is not an obligation but a choice. If the company has surplus cash, it shares that with its shareholders. Hence, if the management feels that cash can be better utilized to pay down debt or reinvest in the business, they might take the short-term hit.

So far, Telus management has only paused dividend growth as it feels a dividend yield of over 9% is a good enough return to shareholders. Hence, they will use that money to improve their payout margin and bring it down to the target range of 60–75% range.

The management looks to grow its FCF by 10% in 2026 by reducing its capital expenditure by 10% and improving revenue and adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). It is also looking to reduce its debt to 3 times its adjusted EBITDA by 2027. To achieve this target, its targeted 3% adjusted EBITDA growth won’t be enough. The telco has to reduce its debt by approximately $1.5 billion.

What to expect If Telus slashes dividends

If Telus announces a dividend cut, I won’t be surprised. It spends $2.5 billion annually on dividends. A halving of dividends like BCE could help Telus divert the $1.25 billion cash to repay debt and achieve the 3 times leverage ratio. A dividend cut will improve its fundamentals, help reduce interest payments, and grow its FCF. That could see Telus’ share price jump 5–10% or more in 2026 alone.

It is difficult to say if a dividend cut is in the cards or not, but there is no point in fearing it. Look at it as a step back before taking several steps forward.

The post One TSX Dividend Stock That Might Have More Upside in 2026 Than Most People Expect appeared first on The Motley Fool Canada.

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More reading

• 2 Canadian Stocks That Pay You While You Wait
• The 2 Best TSX Stocks to Buy Before They Recover
• How Your TFSA Could Help You Earn $2,400 a Year in Tax-Free Passive Income
• How to Convert $25,000 in TFSA Savings Into Reliable Cash Flow
• Is TELUS’s Dividend Still Worth Counting On?

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners, Freehold Royalties, and TELUS. The Motley Fool has a disclosure policy.