* Raises dividend 5 pct; earlier than expected
* Reaffirms 2010 outlook; analysts say it is cautious
* Shares end up nearly 3 pct
* CEO says no boost from Olympic Games (Recasts with comments from CEO and analysts; adds share price close)
By Nicole Mordant
VANCOUVER, May 5 (Reuters) - Telus Corp (T.TO) reported a better-than-expected quarterly profit on Wednesday and announced a surprise dividend rise, propelling its shares 3 percent higher.
Despite the upbeat numbers, Telus, one of Canada's big three telecoms companies, did not change the 2010 revenue and earnings forecasts it released in December. Analysts said it may be being cautious because it is still early in the year.
"I think management is being a bit conservative in not raising its outlook at this point," said Troy Crandall, a telecoms analyst at MacDougall, MacDougall & MacTier.
With capital spending demands slowing and free cash flow increasing, Telus raised its quarterly dividend by 5.3 percent to 50 Canadian cents a share.
It also raised its dividend payout ratio to between 55 percent and 65 percent of sustainable net earnings, up from a previous 45-55 percent band.
"The dividend increase came earlier than expected and the raised payout to 55-65 percent was a surprise," UBS telecom analyst Phillip Huang said in a note to clients.
Telus's stock rose more than 4 percent to a new year high of C$39.16 on the Toronto Stock Exchange on Wednesday, against the trend of a weaker market. It came off its highs to close C$1.08, or 2.9 percent, higher at C$38.61.
"For investors that are more and more concerned with free cash, this looks like a pretty good story," said Greg MacDonald, a telecoms analyst at National Bank Financial.
Telus said it earned C$268 million ($261.7 million), or 84 Canadian cents a share, in the first quarter, as it kept a tight lid on expenses and cut capital spending.
That was 17 percent down from C$322 million, or C$1.01 a share, in the same period a year earlier, when the company benefited from a tax adjustment of C$62 million.
Excluding tax items, earnings per share were 83 Canadian cents. Analysts, on average, had expected earnings of 71 Canadian cents a share, according to Thomson Reuters I/B/E/S.
The financial impact of the Winter Olympic Games, which were held in Telus's Vancouver base in February, was negligible, Chief Executive Darren Entwistle said.
Rival Rogers recently said it had enjoyed an C$8 million boost from the Games but Entwistle said Telus was not as well placed to benefit from the influx of tourists because its new high-speed wireless network had just been launched and it was only starting to develop roaming relationships.
Telus invested heavily last year in a new high-speed network to catch up with Rogers and be able to offer feature-rich smartphones such as Apple Inc's (AAPL.O) iPhone.
This year it plans to spend C$1.7 billion on capital projects across Canada, but predominantly in British Columbia and Alberta.
In the first quarter, total net subscriber additions in its wireless unit rose more than 6 percent to 51,000 from a year earlier, in line with market expectations, Telus said.
Higher value postpaid wireless net additions increased 48 percent to 65,000, while prepaid subscribers decreased 14,000, the company said.
Lucrative smartphone users now represent 22 percent of Telus's total postpaid subscribers, compared with 15 percent a year earlier.
One dark spot was a drop in the net number of Internet additions to 3,000, down 11,000 from a year earlier. Telus said the drop resulted from aggressive pricing and promotions by rival Shaw Communications Inc (SJRb.TO).
Telus TV added a net 29,000 subscribers, 45 percent more than a year earlier, the company said.
$1=$1.03 Canadian Additional reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Peter Galloway