The U.S. is currently fighting a trade war with China. This war is necessary but short-term pain is inevitable. Companies with significant exposure to China have the potential to get hammered. Companies like Boeing, 3M, and Apple are decent dividend companies. However, for the foreseeable future, they will be facing headwinds as the trade war heats up and China slows. With that in mind, I purchased a company nearly immune to trade skirmishes. This week, I added 55 shares of Telus (TU) to my portfolio. The company caries a healthy 4.5% dividend yield and offers exposure to Canadian markets.
Telus Corporation is the largest telecom in western Canada. The company offers wireless services, internet access, entertainment, and healthcare IT. Telus has approximately 9.2 million wireless subscribers. Revenue and earnings have risen steadily over the years. Telus also has a fantastic starting dividend yield of 4.5%. The dividend yield is high but I’m not expecting substantial increases anytime soon. As of 2018, the payout ratio stands at around 76%, leaving little room for growth. The company also has a debt-to-equity ratio of 1.39. From an industry standpoint debt levels at Telus aren’t great but they are manageable. Like AT&T, telecoms typically carry higher debt.
Speaking of AT&T, the company believes its growth will come from media. AT&T plans to create quality content with its Time Warner assets and bundle this content with wireless/internet services. This will help the company better take on direct competitors like Verizon and even give Netflix a run for its money. Telus, in contrast, is finding growth in healthcare, cloud computing, and data services. The wireless market is stagnant in North America, forcing telecoms to rethink their strategies. Thankfully, these two strategies seem to be working as T and TU’s revenues continue to climb.
As mentioned, the debt level on Telus could be better. Like AT&T, Telus has seen its debt rising in recent years. Even so, this is typical for capital intensive industries like real estate, utilities, and of course, telecoms. Debt is just something to keep an eye on. After all, telecoms typically have pretty stable revenue sources. They offer essential services and have lower churn than most industries. Even during a recession, I expect both companies to perform quite well. Even better, telecoms based in North America are nearly immune to the trade war. China needs to be dealt with, yes, but it’s never a good idea to catch a falling knife. Telus is a strong international play and the right investment for this kind of environment.
DISCLAIMER: I am long on TU & T and own both stocks. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.