2 TSX Telecom shares to buy in 2022 for income

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The Bank of Canada recently raised the key rate by 25 basis points to 0.50%. This was done in a bid to stem the surge in inflation, which hit 5.7% in February. With further increases expected on the way, equity and growth bond yields could face strong headwinds.

With the market expected to move more or less sideways for the foreseeable future, some investors have shifted their portfolios towards a high-yield strategy using dividend-paying, income-paying stocks at better valuations. Fortunately for them, the TSX is full of these stocks, especially in the telecommunications sector.

The TSX telecommunications sector has always been a low beta (volatility) anomaly, characterized by monopolistic firms with low competition, endless customer base and high retention rates. These companies have been paying and increasing their dividends steadily for decades, making them attractive long-term investments.

Telus

Telus (TSX:T)(NYSE:TU) provides a range of telecommunications and information technology products and services in Canada. Its products and services are diverse, including wired and wireless internet, cable, security, home automation, healthcare, agriculture, and cloud-based products.

Telus currently has a projected annual dividend yield of 4.03% and pays $1.31 per share. The stock recently became ex-dividend on March 10, 2022 and the dividend will be paid on April 1, 2022. With a beta of 0.54, Telus stock is about half as volatile as the broader market.

Other than that, the company’s revenue, earnings, and dividend payouts have steadily increased over the past decade, showing good growth and profitability in all economic conditions. Telus currently has an operating margin of 16.78%, quarterly year-over-year revenue growth of 9.80% and an ROE of 11.86%.

BCE Inc.

ECB (TSX:BCE)(NYSE:BCE) provides wireless, wireline, Internet, streaming, digital media, broadcast and cable and satellite television services to residential, business and wholesale customers in Canada . It operates through three segments: Bell Wireless, Bell Wireline and Bell Media.

BCE currently has a projected annual dividend yield of 5.42% and pays $3.68 per share, making it one of the best dividend-paying stocks in Canada. The stock also recently went ex-dividend on March 14 and will be paid on April 15. Currently, BCE has a beta of 0.34, making it a third as volatile as the broader market.

Compared to Telus, BCE is trading at roughly the same valuation, with an EV/EBITDA of 10.11 vs. 10.46, a forward P/E of 20.92 vs. 26.45, a P/S of 2.72 vs 2.67 and a P/B of 3.44 vs 3.02. BCE is showing better profitability, with an operating margin of 22.45%, an ROE of 13.07%, but quarterly revenue growth of less than 1.80%.

The insane takeaway

A combination of healthy dividend yields and a history of steady payout increases make Canada’s telecommunications stocks a great defensive play. To sum up, BCE currently has the highest dividend yield and lowest volatility, while Telus has better growth prospects. For diversification, consider buying both.

Buying BCE and Telus now could be a great way to secure a low return on cost, as their current valuations are quite attractive. Both of these stocks are excellent long-term reserves, especially if you can buy them at a discount. Reinvesting and compounding dividends consistently will increase your earnings even more.

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