Dividend shares are a superb entry level when they’re down, as you may lock in the next dividend yield. Amongst good dividend payers, vitality and actual property shares surged in 2026, however telecom shares stayed low. Amongst them, Telus Company (TSX:T) inventory fell 5.5% to a brand new low of round $16 as fears of a dividend lower grew. This inventory will proceed to stay low as fears preserve buyers on their toes.
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Are fears of a dividend lower one thing to be frightened about?
When you assume a attainable dividend lower is detrimental information, let’s back-test this concept. Some dividend cuts sign monetary hassle, whereas others are supposed to strengthen the steadiness sheet.
A number of corporations slashed dividends in 2020 and 2021 as their money flows took successful from the pandemic. Selection Properties, RioCan REIT, Altagas, Suncor Power, Freehold Royalties, and Brookfield Renewable have been amongst them. Dividend cuts assist them liberate cash to enhance monetary flexibility and reinvest in progress. Freehold purchased land in Pembina Basin, which overturned its fortune. Suncor Power used the freed-up money to maintain the enterprise and decrease its prices. The end result for all of them was share worth and dividend progress as soon as the tough patch was over.
Typically, it’s a must to take a step again and relaxation to maneuver a number of steps ahead at a quicker tempo.
Telus is amongst such dividend shares.
Telus inventory may need extra upside in 2026 than most individuals count on
Telus’s inventory worth dip is extra of a dealer’s phenomenon and short-term focus. Nevertheless, in the event you have a look at the telecom inventory from a long-term perspective, you will notice worth.
A simple option to measure an organization’s dividend capability is to take a look at its dividend payout ratio, which is dividend funds divided by free money circulate (FCF). Telus affords a dividend reinvestment plan (DRIP) the place 34% of its dividend funds sit. In a DRIP, Telus doesn’t pay money dividends however as an alternative pays in inventory. This has elevated its excellent shares.
Excluding the DRIP, Telus has a payout ratio of 75%, however after including the DRIP, this ratio jumps to 110%. Many neglect that the dividend will not be an obligation however a selection. If the corporate has surplus money, it shares that with its shareholders. Therefore, if the administration feels that money will be higher utilized to pay down debt or reinvest within the enterprise, they could take the short-term hit.
Thus far, Telus administration has solely paused dividend progress because it feels a dividend yield of over 9% is an efficient sufficient return to shareholders. Therefore, they are going to use that cash to enhance their payout margin and convey it right down to the goal vary of 60–75% vary.
The administration appears to develop its FCF by 10% in 2026 by decreasing its capital expenditure by 10% and enhancing income and adjusted Earnings Earlier than Curiosity, Taxes, Depreciation, and Amortization (EBITDA). It is usually trying to scale back its debt to three instances its adjusted EBITDA by 2027. To attain this goal, its focused 3% adjusted EBITDA progress received’t be sufficient. The telco has to scale back its debt by roughly $1.5 billion.
What to anticipate If Telus slashes dividends
If Telus declares a dividend lower, I received’t be shocked. It spends $2.5 billion yearly on dividends. A halving of dividends like BCE may assist Telus divert the $1.25 billion money to repay debt and obtain the three instances leverage ratio. A dividend lower will enhance its fundamentals, assist scale back curiosity funds, and develop its FCF. That might see Telus’ share worth soar 5–10% or extra in 2026 alone.
It’s troublesome to say if a dividend lower is within the playing cards or not, however there is no such thing as a level in fearing it. Have a look at it as a step again earlier than taking a number of steps ahead.
