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Stock splits are rare among Canadian telecoms. BCE Inc. last split its stock in 1997. Now, Telus Corp. has announced it will split its stock for the first time, on a two-for-one basis, in April. Given the company's trajectory, another split may not be that far behind.
Telus seems to have everything going its way. Its stock has generally outpaced most telcos – both here and abroad – for years, and it's in the third year of a span of promised annual 10-per-cent dividend increases. The company is strongly suggesting it will announce another three-year dividend increase pledge at its May 9 annual meeting, and will likely throw in a share buyback commitment as well.
In addition, CEO Darren Entwistle has for the past four years taken his salary in shares, and recently plowed the after-tax gains from exercising stock options into buying more stock. "I said, 'I'll put my money where my mouth is and put skin in the game and work my ass off to turn these Powerpoint projections into terrific results,'" he told ROB Insight.
Aside from operating in the relatively protected Canadian market, Telus has two advantages over its peers. It derives nearly two-thirds of its operating profits from the growing wireless space – about twice the level as BCE – and is much less exposed to the declining traditional wireline business. Telus's wireless revenue, operating earnings and net customer additions outpaced BCE's Bell unit as well as Rogers in the fourth quarter.
Average revenue per user and churn – the percentage of customers that leave – are the best among the three. Canadians are still behind the rest of the world in cellphone usage – the penetration rate here is about 80 per cent, compared with 100 per cent-plus elsewhere, although some may argue that has to do with the lack of competition here – while Mr. Entwistle predicts the number of wireless customers who opt for more expensive smartphones will rise from 66 per cent now to 100 per cent.
Just as impressive is that Telus's wireline business has stopped bleeding as well. Telus has invested heavily in the past few years expanding its television-by-Internet business, leaving it with free cash flow margins of around 5 per cent in the past two years – one-third the level of Bell and less than a quarter of the cable companies. But that investment has left three-quarters of Telus's customers with the capability to switch from cable to Internet TV, and 26 per cent have – compared to 47 per cent and about 10 per cent, respectively, for Bell. Telus has signed up 678,000 TV customers – largely at the expense of Shaw – and squeezed out a positive gain in wireline operating earnings in the fourth quarter.
In other words, Telus has already made most of the costly investments needed to win over cable customers; Bell still has much of that work ahead. Telus's customer acquisition costs fell steeply in the fourth quarter and overall capital expenditures are due to decline by 2 per cent this year while wireline operating earnings increase; Bell's numbers are headed the other way.
Are there reasons to be skeptical? Of course. Telus faces less wireless competition in the West than its more central Canadian-focused peers in Ontario and Quebec, a situation the federal government wants to change. It's not clear how much more Internet TV can grow, although Mr. Entwistle is bullish. A worsening economy in Canada will inevitably bite into earnings. But Telus has a track record for delivering on its promises and creating value and a CEO who couldn't be more aligned with the interests of shareholders. That bodes well for the future.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.
Sean Silcoff