TELUS Dividend Reset Could Accelerate Debt Reduction Through 2028

TELUS Dividend Reset Frees Cash for Debt Reduction

TELUS' board cut the quarterly dividend by 55% to C$0.1875 per share, or C$0.75 annualized. The reset marks a material change in the company's capital-return framework.

Management expects the lower payout to generate about C$2.7 billion of cumulative cash savings through 2028, with those funds directed toward deleveraging. TELUS also lowered its free cash flow dividend payout ratio target to 45%-60% from 60%-75%, adding another layer of capital discipline.

TU Targets 3.0x Leverage by the End of 2028

Net debt to adjusted EBITDA stood at 3.5 times at the end of the second quarter, while net debt was C$26.0 billion. TELUS is targeting a ratio of about 3.0 times or lower by year-end 2028.

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The target itself is unchanged, but the timeline moved from 2027. Competitive pricing pressure and reduced subscriber demand amid lower population growth have weighed on organic free cash flow generation, increasing the importance of retained cash and operating improvement.

TELUS Free Cash Flow Guidance Raises the Hurdle

TELUS reduced 2026 free cash flow guidance to about C$1.8 billion from C$2.45 billion. The revision reflects lower adjusted EBITDA, higher capital expenditures and C$100 million of incremental cash restructuring charges tied to the cost transformation program.

Capital expenditure guidance also increased to about C$2.6 billion from C$2.3 billion. The lower free cash flow forecast makes the dividend savings a more meaningful part of the deleveraging equation rather than simply an additional source of flexibility.

TU Asset Sales and Spending Discipline Add Flexibility

TELUS is reviewing certain non-core Health assets and non-core real estate, with proceeds intended for debt reduction. The company has also imposed an acquisition moratorium, while its multiyear capital-intensity target of about 10% is designed to improve longer-term cash conversion.

Management expects minimum compounded annual free cash flow growth of 10% over 2027 and 2028 from the 2026 base. Delivering that improvement would give TELUS more internally generated cash to reduce debt alongside asset-sale proceeds.

Sector peers underscore the balance-sheet focus. Rogers Communications Inc. RCI ended the second quarter with a debt leverage ratio of 3.8 times and expects higher free cash flow to support accelerated debt repayment. BCE Inc. BCE is guiding to C$2.1-C$2.3 billion of 2026 free cash flow while maintaining an annualized common dividend of C$1.75.

TELUS Signals Still Point to a Cautious Reset

The dividend reset improves TELUS' ability to direct cash toward debt, but the plan still requires better free cash flow growth and continued execution on portfolio actions. The leverage target therefore depends on operating trends and capital discipline supporting the expected cash build through 2028.

TU currently carries a Zacks Rank #4 (Sell), while the current-year earnings estimate has fallen 19.8% over the past four weeks.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its Value Score of B is relatively favorable, but the Growth Score of C, Momentum Score of F and VGM Score of C point to a mixed setup with particularly weak near-term momentum.

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