TELUS (TSX:T) is trading below $20 per share, catching the attention of dividend seekers and long-term investors. But is this telecom giant a solid buy at its current valuation? Let's explore its recent performance, future prospects, and overall investment appeal to help answer that question.

Into earnings

In its third-quarter 2024 earnings report, TELUS stock delivered solid results, showing resilience amidst challenging market conditions. The company reported a year-over-year increase of 1.8% in consolidated operating revenues, bringing the total to $5.1 billion. This growth was largely driven by an increase in service revenue and contributions from monetizing copper assets and real estate holdings through its TELUS Technology Solutions segment.

The company's focus on innovative products and customer retention strategies was evident in the addition of 347,000 net new customers during the quarter, underscoring its industry-leading customer acquisition performance. TELUS stock also surprised investors with better-than-expected earnings per share (EPS). The company posted $0.28 EPS for the third quarter (Q3), surpassing the consensus estimate of $0.17. This positive surprise was attributed to cost management efforts and operational efficiency improvements.

From a historical perspective, TELUS stock proved to be a reliable performer over the years. Although its shares are currently trading near the lower end of this range, TELUS stock consistently demonstrates resilience through its diversified revenue streams, including telecom, health services, and agriculture technology.

Future outlook

Looking ahead, TELUS stock continues to roll out advanced connectivity solutions, including 5G and fibre optic networks. These are essential for long-term growth. TELUS stock also launched innovative services like TELUS Smart Energy and TELUS Home View, aimed at broadening its customer base and addressing evolving market needs.

One of the most attractive aspects of TELUS for investors is its dividend yield. TELUS stock currently offers a forward annual dividend yield of 8.08% at writing, supported by a payout of $1.61 per share annually. While this high yield is a boon for income-seeking investors, there are concerns about the sustainability of TELUS's dividend. The company's payout ratio stands at a staggering 242.92%, suggesting that it is distributing more to shareholders than it earns. Without a significant increase in earnings or a reduction in capital expenditures, TELUS stock may face challenges maintaining its generous dividend policy.

Debt is another consideration for potential investors. TELUS stock has a high debt-to-equity ratio of 171.64%, reflecting its aggressive investment strategy in network expansion and service innovation. While these investments position the company for future growth, the high level of leverage also increases financial risk, especially if revenue growth slows or interest rates rise.

Is there value?

Valuation metrics present a mixed picture. TELUS stock's trailing price-to-earnings (P/E) ratio of 31.60 suggests it is more expensive than some peers. Yet its forward P/E of 19.53 indicates optimism for future earnings growth. The P/E-to-growth ratio of 0.67 further supports the notion that the stock might be undervalued when factoring in its expected growth rate. These indicators could make TELUS stock appealing to growth-oriented investors willing to look past short-term concerns.

All together, TELUS stock offers a compelling mix of strong market positioning, consistent revenue growth, and attractive dividends. Yet, it also comes with risks like high debt levels and questions about dividend sustainability. Investors looking for a reliable telecom stock with significant income potential might find TELUS stock appealing, especially while shares are below $20.

However, due diligence is essential, especially considering both the growth opportunities and the risks associated with its leverage and payout ratio. For those with a long-term horizon and a focus on dividends, TELUS stock could be worth adding to a diversified portfolio.