TELUS Sets Ambitious Free Cash Flow Growth Target and Pauses Dividend Increases—A New Era for Capital Discipline

Free Cash Flow Growth of at Least 10% Annually Anchors Mid-Term Strategy

On December 3, 2025, TELUS (TSX: T, NYSE: TU) outlined a multi-year capital allocation plan aimed at delivering meaningful free cash flow growth and reducing leverage. The company now targets a minimum 10% compounded annual growth rate in free cash flow from 2026 through 2028—a decisive commitment designed to drive sustainable value for shareholders and fortify TELUS’ financial position. For 2025, management projects free cash flow of approximately $2.15 billion, with a preliminary goal of $2.4 billion for 2026.

This commitment is paired with disciplined capital expenditures—expected to total roughly $2.3 billion in 2026. The plan aims to enhance cash generation, ultimately positioning TELUS for additional investment flexibility and potential deleveraging over the coming years.

Dividend Growth Paused, Focus Remains on Strong Coverage

In a move signaling prudence, TELUS announced a pause in dividend growth. While the company remains committed to its quarterly dividend of $0.4184 per share, future increases will be on hold until the share price and dividend yield better reflect TELUS’ underlying growth. Over the next three years, the projected dividend coverage ratio will be around 75% of free cash flow—a conservative but sustainable approach in today’s market.

For shareholders, this means continued income but less aggressive dividend escalation, as TELUS focuses on balance sheet health and capital efficiency. The message is clear: disciplined capital returns now set the stage for more robust future payouts.

Leverage Ratio Improvement Signals Strengthening Balance Sheet

TELUS’ deleveraging journey continues, driven by successful partnerships and asset monetizations. As of September 30, 2025, the net debt to EBITDA leverage ratio stood at 3.5x. The company targets 3.3x by the end of 2026 and 3.0x by 2027. Management credits a blend of operational performance and strategic capital market activities—including hybrid note issuances and asset sales—for these advances.

The company is also evaluating opportunities such as a strategic partner for TELUS Health and further monetization of real estate and legacy copper assets to support this deleveraging effort.

Step-Down of Discounted DRIP: Phased Out by 2028

TELUS will systematically phase out its Discounted Dividend Reinvestment Plan (DRIP), currently set at a 2% discount, over the next few years. The discount will decline incrementally—first to 1.75% in early 2026, then to 1.5% mid-2026, down to 1% in 2027, and finally to zero by 2028. This move reflects a maturing capital cycle following heavy investments in fibre networks and spectrum.

Key Takeaway: Capital Allocation Focus Positions TELUS for Future Growth

TELUS’ updated outlook sends a message of capital discipline and strategic foresight. With an eye on consistent cash flow growth, prudent leverage reduction, and cautious shareholder returns, the company aims to emerge stronger from its current investment cycle. For investors, the plan underscores management’s commitment to long-term value—even if it means pressing pause on near-term dividend hikes.

As always, investors should keep an eye on how TELUS executes against these goals and any developments around asset sales, partnerships, or changes in economic conditions. The groundwork is being laid for the next chapter—will the company’s share price and cash flow growth meet expectations?

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