Does Telus Corporation Belong in Your Portfolio?

Telus Corporation (TSX:T)(NYSE:TU) is a buy because it continues to add new subscribers and pays a really lucrative yield.

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With stocks at all-time highs, investors are on the prowl for companies that fit their portfolios and make them a bit of money. One stock I’m particular to is Telus Corporation (TSX:T)(NYSE:TU). While it’s near its all-time high, I’m bullish on its yield.

The company pays a very lucrative 4.26% yield, which comes out to $0.46 per share, per quarter–a 9.5% increase year over year. What’s nice is that management just increased the yield two cents from $0.44, so management rewards investors for sticking around.

Not only has the company been paying lucrative yields, but it spent $61 million in Q2 buying back shares. As it reduces the number of outstanding shares, it can reduce how much it has to pay in dividends, thus allowing it to continue increasing how much it pays per share if it wants.

But how has the stock been able to continue increasing the dividend so nicely?

Earnings

Telus continues to experience strong quarterly earnings. In its Q2 2016 results, it consolidated operating revenue of $3.1 billion, up 1.5% year over year. And its adjusted net income was $415 million, up 2.2% year over year. While its revenues missed expectations by $40 million, it beat adjusted earnings per share by a penny.

It was able to achieve this because it added 61,000 net new wireless customers. Further, its average revenue per user (ARPU) rose 1.4% to $64.38. Not only has it kept its churn rate (amount of customers it loses) to 1%, its ARPU has had 23 straight quarters of increased ARPU year over year.

Telus was able to achieve this is because of its amazing customer support. Agents can do what they must to keep customers on board and happy. Getting a new customer costs far more than keeping an old one. That 1% churn is key to Telus’s success.

The company also increased its high-speed internet subscriptions by 6.4% to 1.62 million. And it appears that cord cutting doesn’t exist after all. Telus increased its TV subscriptions by 7.9% to 1.03 million. If this continues, I expect the company will continue paying those lucrative dividends for some time.

But the company is not resting on its laurels. Telus expects to spend an additional $200 million, on top of the $2.65 billion, to invest in upgrading its copper wire networks to fibre-optic technology and make its wireless networks more efficient. By continuously investing in new technology, Telus can keep its customers happy.

But we have to ask ourselves how this company is going to make us money.

If Telus can continue to add new customers quarter after quarter, I expect share prices will continue to increase. But shares are at an all-time high because of low interest rates. If that changes and they start to rise, Telus will have to correct.

However, at this point I believe you’re buying the stock for the yield. Continue to reinvest the yield to add more shares, and if the share price drops due to rising interest rates, you can always average your price down. Fortunately, I don’t expect that to happen for some time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned.

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