Portfolio Choice: TELUS Communications Inc.

I have been trading shares in TELUS for several years now.  As part of my newly regular update on the stocks I continue to own, I provide my quick analysis for why I think TELUS is a good one to own.  This is of course my opinion.

Company Overview

TELUS Communications Inc. (ticker: TU) is a telecom company based in Western Canada, out of Vancouver, BC.  Its base of operations in its wireline business is in the provinces of British Columbia and Alberta, Canada.  It is also a national wireless carrier, and owns 2 brands in this space: TELUS and Koodo (the discount brand).  Their wireline and wireless services drive most of their CAD $9b in annual revenue.  The company has been investing heavily in getting more services into the home (ie: vertical integration) with their launch of their Optik TV, and they continue to invest heavily in building out their network.  They spend about CAD $2.1b annually on their capital program.  Recently, TELUS has been involved in investing in building solutions for the health care industry and electronic health records.

History of Shareholder Return

TELUS has been a solid investment for it’s shareholders over the years, since 2000.  Looking at Google’s charting comparison with the S&P 500, TELUS beats the market by a considerable margin. The company has had a history of consistent dividend increases, and share buy backs.  As a utility, it affords a decent amount of protection to investors looking for a safe bet in the event of economic downturn.  It has a current dividend yield of around 3.8%, paying out 34 cents a share quarterly, as of the writing of this article.

Consistent leadership, customers first, and culture

The current CEO, Darren Entwistle, is a compelling leader.  I have had the opportunity to hear him speak on several occasions, and I am always impressed.  Here is a video on his argument for TELUS to be involved in solving problems for health care.  Mr Entwistle took the reigns in 2000, and has been steering the ship for over 13 years now.  Mr. Canfield, was a past CEO for TELUS / BC Tel, and continues to support the direction of the company.  Consistent leadership.  Mr Entwistle foregoes his salary, and instead is paid in shares only, a confidence booster for any investor.

TELUS’ leadership have defined a unique culture built on consistent strategic imperatives, values and messaging, which has not changed since 2000.  TELUS claims they are the only telco in the world that has been able to do that.  This consistency has many benefits, since the 50,000 employees working there can then be consistently aligned in their approach to their work each day.

The company’s top priority for 2011, 2012, and onward is “putting customers first”, as Mr. Entwistle outlines in his letter to the shareholders here.  This focus is already demonstrating significant gains in the market, as discussed in the Financial Post here.

What I really like is their “Give where we live” program, for charitable giving.  They are recognized globally for their charitable contributions, and were the first Canadian company to achieve this honour.

They also have been recognized for their Annual Report, in the Annual Report on Annual Reports.  Take a look at those results – consistently in the top 10 with a couple exceptions.  Making their annual report clear and easy to understand supports transparent communication – a good sign.

In Canada, they are in the top 10 of admired cultures.  The company’s engagement score, as measured by third party Aon Hewitt, is at 81% as of 2012, which is a best-in-class engagement score.

Here’s an interview with the CEO in 2012 that summarizes all of this.

Future Prospects

As an investment for the future, TELUS is a clear winner for me.  It has a culture that is unique, and this is not something anyone else can easily duplicate.  It is clear that TELUS’ competitors are currently not making the same investments in customer and employee engagement focus, and they are well behind.  I believe this is what will give TELUS a serious competitive edge in the coming years that would make Malcolm Gladwell blush.

TELUS continues to invest heavily for the future, with it’s CAD $2.1b capital spend, which will ensure it stays current in delivering bandwidth to its customers.  TELUS continues to enjoy the benefits of premium pricing in the marketplace, with a favourable ARPU to its competitors that is industry leading.  TELUS is also winning in the battle for TV subscribers, stealing considerable marketshare away from Shaw, the local cable co.

I also like that TELUS has taken on health care as not only a lucrative business problem to solve, but also one that has important social benefits to Canadians.  Some people might argue that this might be a Peter Lynch diworsification, and it may still be.  However, I remain optimistic and excited about what TELUS can deliver in this space.  TELUS is now the largest provider of electronic health care records in Canada.

I have gotten to know this company well over the past several years, and I will continue to monitor their success in the news, and in my own portfolio!

Building a SMART Portfolio

The objective for any portfolio or investment is to maximize returns.  With imperfect knowledge, we must put some guidelines in place to help keep us on track.  I decided to use the SMART objective methodology to craft my strategy.  A SMART objective, (see here for wikipedia) is SIMPLE, MEASURABLE, ATTAINABLE, RELEVANT, and TIMEBOUND.  

Simple (KISS)

This is the first criteria, and it might be the most important one.  It also has a lot of applications to what we are talking about, since not only must the goal be simple, but also the methods you use to achieve it. It is incredibly easy to make your portfolio complicated.  Keeping it simple is important, because otherwise you can get lost.  Believe me in this, because I got a bit lost once.  But now I’m found, and a little poorer for it.

So what does simple look like?  Since we are talking about making the goal simple, a goal for retirement could be to have enough saved so that you have enough to live on when you retire and are no longer making an income.  What does this look like?  This needs to be defined, and most people have no idea what their number is.  I actually do not know what mine is as I write this.  This means my portfolio does not have a proper goal, which is a problem.  How will I know if I have met my goal if I don’t have a target?  Not good.  A future blog article, for sure.

Re-evaluating your portfolio against this goal on an annual basis takes little time, but is critical.  This is a task that is as important as paying your mortgage, or taking out the garbage.  Yet, I don’t know anyone that talks about it, which likely means that most people don’t do this (including me).  Your financial planner would do this for you if you have one, but really this is a critical task that you need to understand yourself.  I’m only in my 30’s, so retirement is a ways off… but I need to do this as well because at some point I will have to sell my high risk stocks, and move the money into low risk stocks.  And then at some point I will have to sell my low risk stocks, and move it into bonds or cash or something even lower risk, like a loan to family (joke joke!).  The process of this evaluation is a good discipline to do each year.

Keeping your portfolio simple to meet your goal is also important, so you can easily track your progress (ie: MEASURABLE).  Keep the number of accounts you hold small if you can.  I have three government registered accounts which are tax favourable and support retirement.  I also have two non-registered accounts for trading in Canada or the US respectively.

You may also consider keeping the number of equities you hold small.  This will make it easier to track each company on how they are performing.  Simplest case, you can just hold an index to the S&P 500.  Indexes are good, and diversified, and are pretty much the same as mutual funds, without the MER.  You could also buy a single company stock straight up and hold it, but there are associated risks with putting all your eggs in one basket, and I would never advocate this over the long term.

Measurable

Measurable is pretty easy to understand, since you need to be able to measure your progress to your goal.  Mint.com is a great tool to use which I use, since it tracks your overall net worth across all your holdings, including real estate.  For stocks, there are lots of online portfolio management options like Google, Yahoo, or StockRover.  I have started to manage all my investing in MS Excel manually.

Attainable

Wouldn’t we all want to be a millionaire?  Well, most of us will have to be in order to survive at our current lifestyle.  Maybe the old expression now is, “wouldn’t we all want to be a billionaire”?  While this is a great goal, I know for me it is not attainable based on what I like to do with my life.  I’m not driven by money, I only want enough to be able to live comfortably.  While I haven’t calculated my magic number yet, it will probably be around $2 million so I can survive comfortably and support my family.

Even if $1 million is a crazy goal for you, never underestimate the power of goal setting.  It is the single most important activity to achieving success.  By having a clear number to work towards and measure yourself against, you will likely surprise yourself.  So, push for a higher number and see what happens over a couple decades.  Studies have shown this.

Relevant / Realistic

I see a lot of sites say the R is Realistic in SMART, but I always think that’s the same as Attainable.  Relevant, however, is pretty important.  Your goal has to be relevant to you, otherwise you won’t believe in it, you won’t care, and you will not have a good investment performance as a result.  I tend to select companies that are relevant to me in one way or another.  I like the idea of solar power, for instance, so I have purchased SPWR which aligns to my interest in this industry.  Many companies publish details on their impacts to their communities, their charitable contributions, etc. to entice shareholders interested in investing in ethical businesses.

Time-Bound

Retirement age is usually a fairly well-defined number for most people.  Having a date for when you must meet your objective will help guide your investment decisions.  If you have X dollars now in savings / investments and you need Y, then you must invest the difference between now and your deadline, minus the difference in terms of the gains you can expect to make.  This starts to get math heavy, so you may want to speak with a bank about it.  They are usually pretty good with helping on this stuff.

There you have it.  The SMART methodology for investing.  When I look at investing in a new company, I will reference the methodology outlined here as a component of my new investing discipline.  I hope you found it useful.