Telus Corp.’s T-T decision to pause its dividend growth was due to “extreme circumstances,” as the company’s share price tumbled and sent its yield rising in recent weeks, a top executive said.
Shares of Telus fell sharply after a Nov. 18 report by J.P. Morgan that called the company’s dividend growth plan “unsustainable.”
Telus’s dividend yield surpassed 9 per cent – a level that suggested many investors saw the payout as unsustainable.
On Wednesday, Telus abruptly paused its dividend growth, saying it would keep its quarterly payout at its current level until its share price “reflects growth prospects.” Analysts reacted positively to the news, saying it could help the share price recover.
Telus chief financial officer Doug French said in an interview with The Globe and Mail Thursday morning that after the stock price did not recover, executives felt it was “time to reassess” the previous plan to continue growing the dividend.
“Your dividend yield should be reflective of the risk and of your organization. And so, when it is up at 9 per cent, it is definitely not reflective of what we believe the future value proposition is,” Mr. French said.
Telus halts dividend increases after analysts call payout growth plan unsustainable
The decision to pause the dividend was preceded by conversations with investors, he said.
Mr. French said chief executive officer Darren Entwistle and management suggested to the board that Telus pause the dividend growth, which the board approved at a meeting on Tuesday. Typically, the board approves the company’s dividend on a quarterly basis. But Mr. French called the situation “extreme circumstances.”
The board meeting was not impromptu and had been previously scheduled to approve budget items for the coming year, as well as other relevant business. The dividend issue was added to the agenda.
According to John Manley, the chair of Telus’s board, directors had already been discussing the dividend when halting growth was proposed by management.
“There seems to be a thread out there that it was somehow imposed on management by the board. We had been talking about the dividend” as the yield “was creeping up as the share price was under pressure. So we had all been talking about it. But this was proposed by management and agreed to by the board,” Mr. Manley said.
Mr. French said the company will discuss reinstating the dividend growth plan when the yield is more “appropriate.” For now, he added, the dividend pause is consistent with, and complementary to, achieving the company’s overall deleveraging target of three for its ratio of net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2027.
Opinion: Telus needs to kick its addiction to dividend hikes
The company also announced Thursday that it is offering to repurchase up to $500-million worth of long-term debt currently trading at a discount. Mr. French said it was an opportunity to accelerate the deleveraging plan.
Telus and other Canadian telecom companies have faced growing pressure to take steps to reduce heavy debt loads amid slower growth across the sector, in part because of reduced immigration.
Mr. French added that the company has strong confidence that it can monetize the assets that it is looking to sell. These include finding a partner for its Telus Health division, as well as continuing sales of copper and real estate.
“We believe in our free cash flow, we believe in our deleveraging, we believe in the trajectory we have,” Mr. French said. “But that being said, the share price was under pressure, and therefore it was the absolute right thing to do to put the pause.”
Another board function is to consider executive succession planning. Telus has had a contract with Zurich-based executive search firm Egon Zehnder International Ltd. since at least 2022, according to the company, and currently is on a contract-to-contract basis with the firm until December, 2025.
“Succession planning doesn’t mean search for a new leader. It just means, Do you have the appropriate path to having a successor when it’s appropriate to do so?” Mr. French said. He added that the company’s executives all have succession plans.
According to the company’s 2024 annual report, the board is continuing to advance its CEO succession process and closely monitoring the development of top candidates.
With reports from Robert Fife and Andrew Willis