A big dividend yield can look amazing on paper, especially when it’s this high. But the catch is that a sky‑high yield sometimes shows up for the wrong reason: the stock price has fallen, and investors are quietly betting the payout might not be as dependable as it used to be. That’s the main risk with buying a high‑yield stock: if the underlying business can’t support the dividend, the company can eventually trim it. When that happens, the share price often takes another hit.
It’s happened plenty of times before: investors chase the yield, the numbers don’t add up, and management ends up resetting the dividend to something more realistic. For a long time, Telus (TSX:T)(NYSE:TU) was exactly the kind of dividend name income investors loved to tuck away and forget about. Recently, though, the story hasn’t been as smooth, and the share price is telling you the market has some doubts.
The stock is down about 5% so far this year, and if you zoom out, it’s down roughly 35% over the past five years. When a dividend stock drops that much, people naturally start asking whether the dividend is truly safe, or whether a cut is eventually on the table. And that brings us to the headline number: Telus currently yields about 9.9%.
In plain English, that’s close to getting one‑tenth of your money back each year in dividends, assuming the payout stays the same. For example, if you put $50,000 into the stock, you’d be looking at roughly $5,000 a year in dividends. That kind of income is hard to ignore, which is why a lot of people are tempted to buy when they see a yield this high.
But the market isn’t treating it like a no‑brainer. One big reason is a metric dividend investors watch closely: the payout ratio.
At the moment, Telus’s payout ratio is well over 100%, which is basically a flashing yellow light. It suggests the company is paying out more in dividends than it’s reporting in earnings, something that can’t go on forever if nothing changes. That said, dividends aren’t paid with accounting profits. They’re paid with cash. And on a cash‑flow basis, Telus has been generating enough free cash flow to cover its dividend. So a dividend cut may not be right around the corner. Still, given how weak the stock has been, it wouldn’t be surprising if many investors are pricing in at least some chance of a reduction down the road. When confidence drops, yields rise because the share price falls.
This is also why Telus has started to look like a contrarian idea: you’re buying something the market is clearly skeptical about.
If Telus can improve its margins and bring that payout ratio down to a more comfortable level, the market could change its mind in a hurry. In that scenario, you’re not just collecting a big dividend. You could also see the share price recover. Of course, there’s real risk here: this isn’t the type of dividend stock you might just hold for decades and forget about. But for investors who can handle some uncertainty (and who don’t mind being early), the upside is that you lock in a very high yield while you wait for the business metrics to improve.