5G Stock

A Leading 5G Telecom Play Providing Huge Gains

The smart money is betting big on the future of 5G technology. One company that looks like it could take a big piece of the North American 5G pie is the often-overlooked Telus Corporation (NYSE:TU).

Telecom stocks recently got a boost after Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK:A, NYSE:BRK.B) revealed it had added 147 million shares of Verizon Communications Inc. (NYSE:VZ) to its portfolio in the fourth quarter of 2020. (Source: “Verizon Climbs 4% After Warren Buffett Reveals Nearly $9 Billion investment,” Markets Insider, February 17, 2021.)

Berkshire Hathaway also has roughly 5.2 million shares of T-Mobile US Inc (NASDAQ:TMUS). (Source: “Form 13F,” U.S. Securities and Exchange Commission, last accessed February 19, 2021.)

The smart money is betting big on the future of 5G technology. One company that looks like it could take a big piece of the North American 5G pie is the often-overlooked Telus Corporation (NYSE:TU).

Chances are good that most U.S. investors have not heard of Telus because it’s headquartered in Vancouver, BC, Canada. But investors can find Telus stock on the New York Stock Exchange.

Telus is the second-largest telecom provider by market share in Canada, with 9 million mobile phone subscribers, capturing about 30% of the country’s total wireless market. (Source: “2019 Annual Report,” Telus Corporation, last accessed February 18, 2021.)

The company’s massive Canadian footprint and investment in 5G technology have helped it provide investors with long-term capital appreciation. Over the last 17 years, TU stock has increased by 1,064%. From 2003 to 2020, Telus stock expanded at a compound annual growth rate (CAGR) of 15.5%.

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Not bad for a boring telecom stock.

For income-starved investors, TU stock also provides an inflation-thumping yield of 4.7%, with a dividend rate of $0.98 per share.

Of note, Telus Corporation has raised its dividend for the last five years. In May 2019, the company announced plans to target ongoing semi-annual dividend increases, with an annual increase in the range of seven percent to 10% from 2020 through 2022.

The company’s dividend payout ratio is quite conservative, at 65% to 75% of net earnings per share.

 Chart courtesy of StockCharts.com

TU Stock Overview

Telus is a 5G industry juggernaut with 16 million customer connections spanning wireless, data, Internet, voice, TV, entertainment, video, security, and more. (Source: “2019 Annual Report,” Telus Corporation, op. cit.)

The company operates through two segments: wireless and wireline.

The wireless segment includes network revenues and equipment sales from mobile technologies. The company’s wireless products and services include data, voice, devices, and Internet of things (IoT) solutions.

The wireline segment includes data revenues; voice and other telecom services revenues; and equipment sales. Wireline products and services include residential services in British Columbia, Alberta, and eastern Quebec; health-care technology solutions; automation and security solutions; business services across Canada; and customer care and business services solutions internationally.

Solid Fourth-Quarter Results

On February 11, Telus announced that its revenue for the fourth quarter ended December 31, 2020 increased five percent year-over-year to $4.1 billion. (Source: “Telus Reports Operational and Financial Results for Fourth Quarter 2020; Announces 2021 Consolidated Financial Targets,” Telus Corporation, February 11, 2021.)

The company’s fourth-quarter operating revenues and other income totaled $4.1 billion, up from $3.9 billion in the same period of 2019, amid growing mobile and Internet customers.

Telus Corporation’s net income came in at $260.0 million (0.20 per share), down from $368.0 million ($0.30 per share) a year earlier. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) slipped by 2.3% year-over-year to $1.3 billion, while its adjusted EBITDA fell 0.2%.

“Throughout 2020, TELUS achieved strong operational and financial results in both wireline and wireless,” said Darren Entwistle, president and CEO. (Source: Ibid.)

“This is a trend the TELUS team has demonstrated over the long-term and, in 2020, realized against the backdrop of an unprecedented operating environment.”

During the quarter, Telus Corporation added 253,000 new customers, up 77,000 from the previous year’s fourth quarter. The additions included 87,000 mobile phone, 88,000 mobile connected device, 44,000 Internet, 20,000 TV, and 23,000 security customers.

The massive wireless gains were partially offset by the loss of 9,000 residential voice customers. The company also said its profit margins in its TV business were trimmed amid higher content costs and that, because of COVID-19, fewer customers were shopping in Telus stores.

In its outlook for 2021, Telus said it expects its revenue and other income to increase by eight percent to 10%, while it expects its adjusted EBITDA to rise by six to eight percent. The company is also targeting free cash flow of approximately $1.5 billion.

Analyst Take

Despite the coronavirus pandemic, Telus Corporation reported another year of industry-leading growth, including a record for annual wireline customer growth.

This helped the company report strong financial results. In fact, Telus was the only telecom provider in Canada to report positive EBITDA growth for the year.

The outlook for Telus stock is excellent. With the Canadian wireless market far less penetrated than the U.S. and European markets, Telus is well positioned to take advantage of the transition to 5G, which should help TU stock rally in 2021.

 

Originally Posted in Profit Confidential