A lot is happening at Telus Corporation (TSX:T), which has shocked analysts and investors. Until February, Telus management was all about cutting costs, reducing debt to 3 times its Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), lowering capital expenditure, and increasing free cash flow. The management revealed a three-year plan to strengthen its balance sheet, and it all looked possible.
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Telus’s shocking AI announcement
On May 19, 2026, Telus announced a plan to invest more than $66 billion over the next five years to expand its network and artificial intelligence (AI) infrastructure across Canada. Telus is partnering with the federal government to build a sovereign AI facility in Vancouver. A government backing and AI positioning does sound exciting, but it will only be fruitful if AI demand and pricing support the investment.
The timing of this investment poses a challenge to the new chief financial officer, Gopi Chande, who will take the helm from July 1, 2026. The telco is already struggling with the significant debt it took on to build 5G infrastructure, whose return on investment has been reduced with a regulatory change. Will the AI infrastructure investment put the 2028 target to achieve a 3 times leverage ratio on the back burner?
A $66 billion investment over five years converts to a whopping $13.2 billion investment per year. Telus is unlikely to fund this investment with debt when it has $26 billion in long-term debt on its balance sheet as of March 31, 2026. I am expecting a partnership with a deep-pocketed company that brings in the money, and Telus brings in AI capability.
What’s the deal with Telus’s dividend?
Telus has not yet specified how it will fund the AI investment. But a capital expenditure of this intensity is not possible when dividend costs are eating up 112% of its free cash flow. Telus offers a dividend reinvestment plan (DRIP) that dilutes its equity as every new treasury stock added through DRIP comes with a commitment for future dividend payments.
Many infrastructure companies, such as Enbridge, suspended their DRIP as their capital expenditure requirements increased. I will not rule out the possibility of Telus suspending its DRIP in the near future. The company might also announce a 40% dividend cut, as that could save it $1 billion annually.
Remember, dividends are paid from the money left after investing in expansion and debt servicing. If the management finds a better investment opportunity, it can cut dividends and focus on growth.
What has changed in dividend expectations?
Until May 19, Telus’s dividend path was clear: a 72% payout ratio after excluding DRIP, phase-out of the 2% DRIP discount by 2028, and a possible dividend cut if Telus cannot offload its non-core assets and repay some of its debt to achieve a 3 times leverage ratio.
Post May 19, Telus’s investment priorities seem to be shifting from repairing the balance sheet to expanding infrastructure. When BCE changed its course from telco to techno, it altered its dividend policy and long-term payout targets. It reduced its long-term dividend payout target from 65–75% of free cash flow to 40–55%. It cut its dividend by 56% and paused dividend growth. All this because BCE was investing in the US fibre network and AI enterprise solutions. Telus could follow BCE’s steps.
Is a 9.6% dividend yield attractive?
In light of current developments, Telus’s 9.6% dividend yield may no longer be the reason to buy this stock. However, investors looking for AI exposure and a share price rally in the medium to long term could consider investing in Telus.
