TELUS CORP. (Toronto symbols T $62 and T.A $62; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) is the main provider of telephone service in Alberta, British Columbia and parts of Quebec, with roughly 4.5 million customers. It also operates a national wireless service under the Telus Mobility banner.

Back in October 2000, Telus acquired wireless provider Clearnet Communications Inc. This gave Telus an instant national network, and let it avoid having to build its own network from scratch. Demand for wireless services has soared since the acquisition, and now supplies half of Telus’s revenue and two-thirds of its cash flow.

Along with the Clearnet business, Telus acquired substantial tax loss carryforwards, which is could use to offset its taxable income. However, the company is now close to using up all of the tax loss carryforwards. Rather than let its tax rate shoot up, the company unveiled plans in September to convert itself into an income trust. The stock shot up on the news.

The plan calls for each common and class A non-voting share to become one trust unit. The new trust will have a single class of units, which will improve liquidity.

Telus’s current annual dividend of $1.10 yields 1.8%. After its trust conversion, it plans to distribute about 90% of its cash flow, which implies an initial annual payout of about $4.00 a unit, for a 6.5% yield.

Telus feels it will generate enough cash to increase the payout. However, a high payout could hinder its ability to expand.

The trust conversion will trigger a capital gain. However, Telus may give investors the option of taking new securities that are convertible into units. Investors would only be liable for capital-gains taxes when they sell these exchangeable securities.

Telus is a buy.