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Tuesday, November 18, 2014

Invest and retire before you die - TELUS Corporation (T)

Have you ever wondered how an investment in a boring, blue chip company that pays dividends to share holders and periodically grows those dividends performs over long periods of time?

Welcome to the Invest and retire before you die series, where I explore the merits of long term investments in Canadian blue chip companies that pay and grow their dividends every year. I have seen these studies for American companies in the past and figured it would be nice for people to find something equivalent for Canadian ones. Notice that many Canadian blue chips companies are also listed in American exchanges and are therefore easily available to US investors.

If you are interested in other companies already discussed as part of this series, you can check out:
Invest and retire before you die - The Bank of Nova Scotia (BNS)
Invest and retire before you die - Emera Inc (EMA)
Invest and retire before you die - RioCan Real Estate (REI.UN)
Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Invest and retire before you die - Enbridge (ENB)
Invest and retire before you die - TransCanada Corporation (TRP)
Invest and retire before you die - Suncor Energy (SU)
Invest and retire before you die - Toronto-Dominion Bank (TD) 

Why dividend payers and growers?
Revenue that is distributed to share holders is the hard proof that money is flowing in the business. It is hard to argue with cash that is periodically paid out to shareholders. In addition to that, dividends that are increased every year show the confidence that the management of a company has in the future operations of the business to sustain the new pay outs. Management knows how negatively, future dividend cuts are perceived by investors. That's why, when dividends are increased, they better make sure they can sustain them, which shows confidence. Increasing a dividend shows that the business is not only functional but that there is potential for sales and revenues to keep growing going forward. 

Dividends are not only for old retirees but for anyone willing to make money as a long term investor. From 1930 to 2013 dividends were responsible for about 42% of Stock Markets returns.


An Investment in TELUS Corporation
Symbol: T.TO (Toronto Stock Exchange), TU (New York Stock Exchange)

Taken from Google Finance:
"TELUS Corporation (TELUS), incorporated on October 26, 1998, is a telecommunications companies, providing a range of telecommunications products and services products including wireless, data, Internet protocol, voice and television. The Company’s operates in two segments: wireless and wireline. The Wireless segment includes voice, data and equipment sales. The Wireline segment includes data (which includes: television; Internet, enhanced data and hosting services; and managed and legacy data services), voice local, voice long distance, and other telecommunications services excluding wireless."

A classic telecom and one of the three big players in Canada (along with Rogers and Bell)


How would a $10,000 investment in TELUS have fared in the last two decades?
Data from August 1, 1995 to October 17, 2014. That is 19.22 years. Numbers reflected in Canadian Dollars.

A $10,000 investment in TELUS on August 1, 1995 with dividends reinvested in the stock would have been worth $58,358 on October 17, 2014. That is an Average Annual Return of 9.61% in a period that includes the 2000 dot com bubble burst, 9-11 terrorist attacks, Wars, the 2008 market correction (second worst in history), the 2011 debt ceiling issues in the US, the European debt debacle. Your initial investment would have been multiplied 5.8 times. You would own 1535 shares at the end of the period, each one of them paying you $1.52 a year in dividends for a total passive income of $2,333 per year.

Comparison of an investment in TELUS vs an investment in the S&P500 index
But what if instead of buying once and forgetting you decided to contribute with additional purchases every year? What if instead of purchasing $10,000 worth of stock once, you decided to invest $5,000 every year?

Had you invested $5,000 every year in TELUS and reinvested all the dividends along the way, your investment would have been worth $280,643 and you would have been the proud owner of around 7,337 shares of stock that would be paying you $11,152 every year in the form of dividends. Dividends that are favorably taxed in respect with normal income a.k.a salary. Dividends that provide you with cash flow without selling your shares, without giving away your ownership on the company.

Even though it is not the most spectacular investment discussed in the series, you can see the absolute power of compounding, dividend growth, and reinvested dividends. A long term investment in TELUS could be a life changer going forward.

This is the ninth company analyzed as part of the Invest and retire before you die series. The last chapter of the series will be a hypothetical portfolio combining all nine companies. We'll answer questions like how did this portfolio perform in the last 20 years? What was its draw-down in 2008? Things you could expect going forward and some other considerations. So, stay tuned!

Related Articles:
Chapter 1 - Invest and retire before you die - The Bank of Nova Scotia (BNS)
Chapter 2 - Invest and retire before you die - Emera Inc (EMA)
Chapter 3 - Invest and retire before you die - RioCan Real Estate (REI.UN)
Chapter 4 - Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Chapter 5 - Invest and retire before you die - Enbridge (ENB)
Chapter 6 - Invest and retire before you die - TransCanada Corporation (TRP)
Chapter 7 - Invest and retire before you die - Suncor Energy (SU)
Chapter 8 - Invest and retire before you die - Toronto-Dominion Bank (TD)
Chapter 9 - Invest and retire before you die - Telus Corporation (T)
Chapter 10 - A basic Dividend Growth oriented Canadian Investment Portfolio



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