Last week, we looked at one of Canada’s leading blue chip stocks, BCE Inc. (BCE aims for faster networks, higher dividends). Today, we examine rival telecom Telus Corp. Like BCE, Telus has made a massive investment in boosting the speed and capacity of its networks. With demand for wireless services increasing, this investment promises to pay off in rising earnings and further dividend increases.

Since 2000, Telus has spent $27 billion—roughly its current market cap—to boost the speed and capacity of its wireless and high-speed Internet networks. Meantime, its strong customer service is helping it hang on to current subscribers.

These strengths should keep fuelling the company’s stock, which is up 155% in the past 15 years, while its rising earnings mean its dividend hikes and share buybacks will continue.

TELUS CORP. (Toronto symbol T; www.telus.com) is Canada’s second-largest wireless carrier, after Rogers Communications, with 8.2 million subscribers. Wireless now supplies 55% of Telus’s revenue and 66% of its earnings.

The remaining 45% of revenue and 34% of earnings come from its wireline division, which serves 3.1 million traditional phone customers in B.C., Alberta and eastern Quebec. This business also has 1.5 million Internet users and 937,000 TV clients.

Telus’s revenue rose 22.6%, from $9.8 billion in 2010 to $12.0 billion in 2014. Earnings gained 45.0%, from $983 million in 2010 to $1.4 billion in 2014. Per-share profits rose 51.0%, from $1.53 to $2.31, on fewer shares outstanding. Cash flow per share improved 24.4%, from $4.30 to $5.35.

If you exclude unusual items, such as costs related to ongoing efficiency improvements and fees for early debt repayment, earnings per share rose 11.6%, to $2.41 in 2014 from $2.16 in 2013.

In the three months ended March 31, 2015, the company earned $427 million, up 11.5% from $383 million a year earlier. Earnings per share rose 12.9%, to $0.70 from $0.62, on fewer shares outstanding. Revenue gained 4.6%, to $3.0 billion from $2.9 billion.

Blue chip stocks: Strong demand for wireless data contributes to rising revenue for 18 straight quarters

Telus added 8,000 wireless subscribers in the latest quarter, net of cancellations, down 20.0% from a gain of 10,000 a year earlier. The federal government now lets customers cancel their wireless contracts after two years. As a result, Telus and other carriers are focusing more on keeping current customers than attracting new ones. The company’s churn rate, which shows how many subscribers cancelled their service, fell to 1.28% from 1.50% a year earlier.

Telus’s strong focus on customer service would also help it compete if Ottawa lets foreign wireless carriers, such as Verizon and Google Fi, enter the Canadian market.

Meanwhile, strong demand for wireless data increased Telus’s average monthly revenue per subscriber by 3.2% in the latest quarter, to $62.34 from $60.42. This figure has now risen for 18 consecutive quarters.

In addition, more of Telus’s wireless users are upgrading to smartphones with long-term contracts. These subscribers now account for 86.2% of its wireless clients, up from 84.6% a year earlier. The gains are partly because the company’s traditional phone customers are switching to wireless. Telus lost 25,000 regular phone customers in the latest quarter, net of cancellations, compared to a year-ago loss of 24,000.

It also added 21,000 new TV customers, though that was down 22.2% from a gain of 27,000 a year earlier due to strong competition from Netflix and other TV providers. It added 23,000 new high-speed Internet users, up 9.5%.

Telus raises dividend for the ninth time since May 2011

Meantime, Telus’s big network investments continue. Earlier this year, it paid $1.5 billion for new AWS-3 radio frequencies (or wireless spectrum), which will boost its wireless networks’ speed and capacity. The company also agreed to pay $479 million for new 2500 MHz radio frequencies, which will expand its reach in rural areas.

Excluding spectrum licence fees, Telus expects to spend $2.4 billion on network upgrades in 2015, about the same as last year.

To help pay for the new spectrum, the company sold $1.75 billion of long-term notes. That increased its long-term debt by 19.2%, to $10.8 billion as of March 31, 2015, from $9.1 billion at the end of 2014.

That seems high at 40% of Telus’s market cap, but its annual free cash flow (or cash flow minus capital expenditures) is $1.1 billion, which gives it plenty of flexibility to pay down debt. Telus has also staggered its loan maturities to 2045, so its annual repayments are manageable.

Meantime, the company’s sound balance sheet gives it plenty of room to invest in other businesses, including its health care division, which helps doctors, pharmacies and hospitals convert patient records and other data to electronic formats. Insurance companies also use these services to process over 250 million drug-plan claims a year.

Telus recently increased its quarterly dividend by 5.0%, to $0.42 a share from $0.40. The new annual rate of $1.68 yields 3.7%. The company has now raised the rate nine times since May 2011.

Since 2004, Telus has spent $4.6 billion on share buybacks. Under its current authorization, the company can repurchase up to 8.9 million of its shares, or 1.5% of the total outstanding, by September 30, 2015.

Telus’s earnings should improve to $2.57 a share in 2015, and the stock trades at a reasonable 17.5 times that estimate.

Recommendation in The Successful Investor: BUY