Telus shares drop 4.7% after downgrade

Telus Corporation's shares dropped significantly after a downgrade by Bank of America. The downgrade was due to concerns about the company’s debt levels and its ability to meet dividend payments. On the Toronto Stock Exchange, Telus shares fell by 4.7 percent during afternoon trading. Bank of America changed its rating of Telus from "buy" to "neutral," reducing the target price from $24 to $22. Analyst Matthew Griffiths highlighted various challenges the company faces. These include high leverage and a dividend that exceeds its free cash flow. He noted that Telus's reported free cash flow includes funds from a subsidiary, Telus Digital, which does not contribute to dividend payouts. Veritas Investment Research also raised concerns about Telus's financial health. Analyst Liam Gallagher pointed out that a large portion of free cash flow comes from Telus Digital, making it unclear how much is actually available for dividends. Gallagher projected that Telus's dividend payout ratio would be significantly high in coming years. Telus has about $29 billion in total debt and aims to reduce its leverage ratio by the end of 2027. The company is also trying to lower its payout ratio to between 60 and 75 percent. Recently, Telus announced plans to generate cash by selling non-core assets and reducing the discount on its dividend reinvestment plan. Despite these objectives, analysts expect Telus may struggle to meet its targets. The company’s credit rating was downgraded by S&P Global Ratings due to competitive pressures and economic uncertainties affecting revenue growth. The ratings agency warned that these challenges could keep Telus's leverage high for an extended period.