While Canadian telecom stocks should continue to be relative beneficiaries of any flight to quality/safety, RBC expects a subdued revenue growth environment to limit any meaningful sector-wide multiple expansion and put greater emphasis on NAV growth and company-specific catalysts.

Year-to-date, the S&P/TSX Telecom Index has generated a -2% total return compared to -7% for the S&P/TSX Composite Index. Following a year in which wireless promotional activity in H1/24 was more aggressive than expected, the Big 3 downwardly revised 2024 revenue growth guidance, and Quebecor and Cogeco struggled to generate even modest positive underlying revenue growth. RBC expects industry revenue growth to remain under scrutiny in 2025.

Decelerating industry growth, elevated competitive intensity and what is likely now to be growing tariff-induced macro headwinds through 2025 are also putting the spotlight on the dividend policies of BCE and Telus, RBC said.

For BCE, the Board maintained the dividend with Q4/24 results while emphasizing an ongoing review of the dividend policy. "Our working assumption is that there is a higher probability than not that the Board this quarter cuts the dividend to optimize the company's cost of capital and provide added financial flexibility."

For Telus, RBC expects the Board to announce a new annual dividend growth commitment (roughly +3%-7%) for 2026-2028 with actual dividend growth likely at the lower end of this range in the absence of improvement in the revenue environment.

RBC's Outperform-rated stocks are Telus (target lowered to $24 from $25), Quebecor (target raised to $41,from $38), and Rogers (target lowered to $54 from $57).