Open this photo in gallery:
Telus headquarters in Vancouver. The company cut its dividend by 55%, saying it expects the move to generate about $2.7-billion in cash savings through 2028.DARRYL DYCK/The Canadian Press
Telus Corp. T-T has slashed its dividend by 55 per cent and lowered its financial guidance for the year in a bid to improve its finances after a challenging period for the telecom and technology company’s share price.
The company’s decision to cut its quarterly dividend to 18.75 cents per share from 41.84 cents per share marks a broadly anticipated move from its new chief executive officer, Victor Dodig, as he reorients the company’s finances and strategic direction.
Analysts have been raising concerns about Telus’s dividend growth plans since last year, when some called its previous plans to continue increasing its dividend unsustainable. Telus paused dividend growth last November, but has faced ongoing pressure from Bay Street to cut the payout.
The company said Friday the dividend cut is expected to generate about $2.7-billion in cash savings through 2028, which will be used to reduce its long-term debt.
Telus said it expects revenue for the year to be flat or fall up to 2 per cent, compared to prior guidance in May of a revenue increase of 2 to 4 per cent. The company said its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is now expected to fall by 2 to 4 per cent for the year, compared to prior guidance of growth of 2 to 4 per cent. Full-year cash flow is expected to be $1.8-billion this year, down from the prior estimate of $2.45-billion or by about 27 per cent.
Telus has further moved to eliminate the discount it offers investors who use the company’s dividend reinvestment plan (DRIP). The plan allowed shareholders to receive their dividend payments in shares priced below current market value. The change is effective Oct. 1.
Several analysts and investment managers told The Globe and Mail that the dividend cut had been baked in to the company’s stock price for months.
Before the cut, the dividend yield had reached 11.6 per cent, suggesting the market was resigned to a large cut. It will now yield about 6.9 per cent, with Telus’s share price set to open on the Toronto Stock Exchange at $15.08 Friday morning.
Telus’s share price has declined by nearly 46 per cent in the last five years, and 16 per cent since the beginning of the year.
The cut marks a turning point for the company’s financial strategy under the new leadership. Darren Entwistle, who retired at the end of July after 25 years at the helm, told The Globe last month that he would have “stayed the course” on the dividend, but acknowledged at the time that his successor, Mr. Dodig, may do otherwise.
On Bay Street, Mr. Dodig became known for turning around the financial performance and share price of The Canadian Imperial Bank of Commerce, which was underperforming its peers when he began as CEO.
Now, he is taking on Telus in the middle of a major transformation amid a challenging time for the industry as a whole, as population growth has slowed and wireless prices have been forced down by greater competition.
In addition to a dividend cut, analysts have suggested Telus could divest of a range of non-core assets – from its venture portfolio and surplus real estate to a greater proportion of its health business, which it is currently attempting to monetize.
In a July note to investors, TD Cowan analyst Vince Valentini calculated that the company could hypothetically make upwards of $8-billion and significantly lower its debt leverage if it were to divest of all its non-core assets, although he said this was an “extreme scenario.” He estimated the company would cut its dividend by 30 per cent.
And Scotiabank analyst Maher Yaghi said in a note earlier in the month that a roughly 50-per-cent dividend cut “would create the financial flexibility needed to begin repairing the balance sheet and reset the equity story on a more sustainable footing.”
It’s not the only dividend cut that Canadian investors have witnessed recently. Last year, rival telecom BCE Inc. slashed its own dividend by 50 per cent in order to allocate that cash elsewhere.
