Last month, Telus (TSX:T)(NYSE:TU) made a move that many were fearing and anticipating: it cut its dividend. It was a significant one, with Telus reducing the size of its quarterly dividend from 41.84 cents to 18.75 cents. It's a huge reduction for investors who have been relying on the dividend for years.
However, with the stock in a free fall and losing more than half of its value over the past five years, even with the lower payout, the dividend yield is fairly high right now. Its current dividend equates to a yield of about 5.4%. That's above average for the stock market these days, and investors can still generate a ton of dividend income from the investment.
The good news is that Telus stock didn't really go over a cliff after announcing the cut. It fell, but it wasn't as drastic as it could have been if not for its significant decline over the past few years. The danger and risk, however, is that this might just be a temporary reprieve for investors before it goes down even lower. Long-term investors have already experienced this in the past, with Telus continually falling to new lows. Buying the dip just hasn't been a sound strategy.
At some point, however, the stock will bottom out. This is still a profitable business and a leader in the telecom sector. It'll bounce back and it won't stay down forever. For investors who are willing to be patient, Telus stock can be worth buying. Its dividend, while reduced, should be more stable now. And in the long run, the stock should recover, it's just a question of how long that might take.
