Telus may be facing some headwinds in Western Canada because of Alberta’s oil-related economic challenges and Shaw Communications’ recent entry into the wireless telecommunications arena with its acquisition of Wind Mobile. But the company is still well positioned to keep increasing its earnings and dividends.
Telus Corp.’s (TSX─T) shares have retreated considerably from their high of about $45 last summer. That’s partly because Alberta’s economic challenges have had a negative impact on the company’s revenues. Indeed, the province accounts for roughly a third of Telus’ revenue. Then too, Shaw Communications has decided to enter the wireless arena with its recent acquisition of Wind Mobile Corp., Canada’s largest non-incumbent wireless services provider. This raises the specter of increased wireless competition in Western Canada.
Telus has been Canada’s fastest-growing national telecommunications company, with $12.5 billion of annual revenue and 12.5 million customer connections, including 8.5 million wireless subscribers, 1.5 million residential network access lines, 1.6 million high-speed internet subscribers and 1.0 million TV customers.
Despite the Alberta headwinds, the company managed to increase its adjusted net income by nearly five per cent in 2015. For the year ended 2015, Telus made $1.6 billion, or $2.58 a share, compared with $1.5 billion, or $2.41 a share, in 2014. The increase was due to growth in earnings before interest, taxes, depreciation and amortization (EBITDA), and lower financing costs.
EBITDA (adjusted) increased 4.6 per cent to $4.5 billion, reflecting growth in wireless network revenues and wireline data revenues; improving margins in internet, TV, business process outsourcing and Telus Health; and the execution of operational efficiency initiatives.
In the final quarter of 2015, Telus raised its quarterly dividend by 4.8 per cent to $0.44 a share.
Telus’ shares may continue to face pressure from difficult economic conditions in Alberta and wireless competition from Shaw. But the company is still well positioned to keep increasing its earnings and dividends. This year, Telus has targeted a five-to-12-per-cent growth rate in its basic earnings per share. The target reflects the benefits of the company’s ongoing investments in broadband infrastructure and a focus on both client service excellence and cost efficiency.
Telus’ shares trade at a relatively attractive 14.5 times this year’s forecast earnings of $2.70 a share. The stock’s yield is also attractive, at 4.5 per cent. Telus is a long-term buy for income and some growth.
Money Reporter, MPL Communications Inc.
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