I don't think the $T Telus stock drop is a surprise. The bleeding has been going on for a while. At some point, it had to stop. The company needed to retain more cash to reinvest, grow the business, increase shareholder equity, and put itself back on a recovery path. The red flags have been there for a long time. The way I see it, and this is just my opinion, cutting the dividend was the only real option. The previous CEO built out the infrastructure while trying to maintain the dividend for shareholders, so I understand why it was difficult to make that decision. But the infrastructure build-out is largely done. Now it's about fixing the financials. I think Dodig made the right call. It wasn't popular, but it was necessary. At today's price, I'd much rather own a stable 5.6% dividend than chase an unsustainable 12% yield. With all the cash that's now being freed up, I'm hoping we see debt paid down much faster. Lower debt means lower interest expense, which frees up even more cash to reinvest. If that happens, competitors should be paying attention. The way I picture it is a ball on a seesaw. For years it kept rolling the wrong way. First you have to stop it, then get it back to balance. Once it starts tilting in the right direction, even if it's a slight slope, momentum builds on itself. Short-term pain. Long-term gain.
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14 Comments
Jesse H@jhodg91 · 2d
I have the same thoughts!
Kevin Young@luoyoung · 1d
Agreed 100%. Dividend should have been cut a year ago. Good to see it happening to hopefully help the company recover
Kevin W@kwang1993 · 2d
@diversifiedfill Honestly, I don't disagree with you, and personally I would still hold if the yield is down to 3%. if that means it can be turned around. So basically I'm ok if the do even more steeper cut. From a pure numbers perspective, cutting the dividend completely would definitely free up more cash to pay down debt. But I think management is also trying to protect the share price and keep some stability. If they eliminated the dividend altogether, a lot of income-focused investors would probably move on because the main reason they own TELUS is the yield. Many of them may not want to wait years for the turnaround to play out. By cutting instead of eliminating the dividend, TELUS can still use the extra cash flow to deleverage while keeping a stronger base of shareholders. A healthier stock price also helps maintain investor confidence and avoids the company becoming too undervalued. When a good company gets beaten down too much, it can become more attractive as a potential takeover target. I think management is trying to balance both sides: fix the balance sheet, but also avoid damaging the shareholder base and market perception of the company.
Phil @diversifiedfill · 2d
My hot take - I personally don't think Victor Dodig went far enough. In the most recent quarter, Telus LOST money, to the tune of negative 1.8 billion dollars! And they still want to pay some kind of a dividend? I think they should have completely suspended the dividend until the company was returned to profitability. I think the company should be profitable before any dividend is paid. So, I think the dividend should be totally suspended until all of the problems with the underlying business is fixed. This is like trying to drive your car while trying to replace the transmission. In my opinion.
Brett @birdmanbrett · 2dEdited
Ya I think most knew a cut was coming here. The writing was on the wall when even Allied Properties and Fierra Capital and other Canadian high percentage payers with high debt cut theirs.
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