Telus and BCE look like BUYS at the prices in late August. Are you buying now?

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But their dip has to be caused by more than “the market is down”. Their dividends normally protect them in market corrections. I am looking to take a larger position here. Thoughts?

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Asked on August 24, 2023 7:19 am
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Hey there,

So the thing with telecoms, is that while they do provide protection in market corrections, the current correction is being fueled by higher rates. Higher interest rates actually has a negative correlation with dividend stocks. Since you can get a GIC with a 5% yield, that becomes far more attractive than dividend stocks which bring with it more volatility and risk. This is normal price action when it comes to this type of environment. Conservative investors will flock to safety and lock in high-yield guaranteed income products versus buying dividend stocks. Keep in mind, this is all short-term price action and we belive telecoms still make for excellent long-term investments.

Secondly, since telecoms are high capex companies - higher rates impact them quite materially since they have high debt loads. This means they are paying more interest on the debt the currently have, and it'll cost more to maintain their existing infrastructure and/or growth. More interest paid, means lower margins and profitability. Once again, this is likely only to impact these companies over the short to medium term. Once rates stabilize, we should see Telecoms perform better.

All in all, this is why you are seeing the current dip in their share prices. Telus has the added issue of TIXT which guided downwards and accounts for ~10% of Telus' business. All that said, we still believe in these businesses over the long-term and would have no problems accumulating here.

Mat

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Posted by Mathieu Litalien
Answered on August 25, 2023 7:51 am