The expanding volume of Telus (T.TO, TU) shares in recent years has diluted existing shareholders and strengthens the case for a significant dividend cut, analysts at National Bank of Canada argue.

As the share count has grown, each share represents less of the company while the total dividend bill has climbed. At its current share price, Telus’ dividend yield is now an “incongruous” 9.4 per cent, analyst Adam Shine says in a Wednesday note to investors — significantly higher than BCE’s (BCE.TO, BCE) five per cent yield.

Telus’ share dilution is further argument for the company to make a “dividend cut [of] at least 30 per cent” and speed up the end of a program (DRIP) that offers discounted shares in place of cash dividends, Shine says.

In a February note that looked at Telus’ payout ratios, he reached a similar conclusion — estimating they could hit 80–88 per cent, meaning most of its earnings would be paid out to shareholders. That note suggested the Telus board of directors should reconsider its dividend strategy ahead of the arrival of incoming CEO Victor Dodig.

Telus’ dividend strategy has been under scrutiny for some time. The company paused its dividend growth plan last December, a move analysts embraced. It also announced the DRIP discount would gradually drop from two per cent to zero in 2028.

In the latest note, Shine writes that there are around 339 million more Telus shares now than in 2019 following years of DRIP issuance, equity offerings and shares issued for acquisitions.

At the current dividend of $1.67 per share, the additional 339 million shares represent an extra $567 million annually in dividends, Shine says — highlighting how dilution alone is pushing the company’s dividend costs higher even without increases to the payout.

The DRIP program could still pad on another 35 million shares this year, Shine says, adding roughly $59 million more to the annual dividend bill.

“Assuming the DRIP discount went to zero at the end of 2026 instead of 2027, the dividend would need to be cut 24 per cent to fully mitigate the $626M dividend burden heading into next year,” Shine wrote.

If Telus reached the average analyst target of $21 per share on the Toronto Stock Exchange and left its dividend untouched, that would mean a yield of eight per cent, Shine writes — placing it within an “incongruous group.” On the TSX, stocks offering a similar yield include “REITs, mortgage lenders, small/mid-cap energy, and niche financials,” he says.

To get the current dividend yield down to six per cent — closer to BCE or U.S. telecom firm Verizon (currently with a 5.6 per cent yield) — Telus’ stock price would need to hit $28 per share, Shine notes. Reference