Telus (T CN) Canada
Communications
Liam Gallagher continues to have significant concerns about the sustainability of the company’s dividend. Management announced a 3-8% annual dividend growth target from FY26 through FY28 and reiterated plans to eliminate the DRIP discount by FY27. While Telus expects to support this through billions in asset sales, reduced capital intensity and EBITDA growth, Liam remains unconvinced. Even if everything unfolds as planned, Telus' FY28 payout ratio will be 104% based on Veritas’ definition of FCF and 89% using the company's. He also does not believe the company’s premium valuation at 17x FY25 P/FCF vs. BCE at 13x and Rogers at 11x is justified, especially given its higher payout ratio (~145%) and net debt/EBITDA (3.9x) relative to peers.
Edition: 211
- 16 May, 2025
BCE (BCE CN) Canada
Communications
Dividend sustainability - it is the first, second and third question on the minds of BCE investors right now. While it is known that BCE will be at an elevated payout ratio for FY24 (~129% based on company guidance), Veritas initially estimated an adjusted payout ratio closer to ~170% after deducting lease principal payments, but they now think it will be closer to 200% based on annual disclosures that showed a $157m (18%) increase in annual lease payments. Even under optimistic assumptions BCE will still be above an adjusted payout ratio of 120% by FY27. There is limited financial flexibility to maintain the dividend long-term. The share price has fallen ~30% over the last 12 months but is still not cheap.
Edition: 185
- 03 May, 2024