A Dividend Stock to Think About
Today I’m highlighting one of the most overlooked dividend stocks on the market: Rogers Communications Inc. (NYSE:RCI).
If you live in the United States, Rogers Communications probably doesn’t sound like a familiar name. But the company has a big presence north of the border. Rogers has 10.8 million subscribers in the Canadian wireless market. To put that in perspective, Canada is a country with around 37 million people.
Rogers provides postpaid and prepaid wireless services under the “Rogers,” “Fido,” and “chatr” brands. It is one of the biggest players in Canada’s wireless carrier business, and has a Long Term Evolution (LTE) network that has reached approximately 96% of the country’s population.
Unsurprisingly, wireless is by far the company’s largest segment. Last year, it contributed 60% of Rogers’ total revenue and 67% of its total adjusted earnings before interest, tax, depreciation, and amortization (EBITDA). (Source: “Investor Presentation,” Rogers Communications Inc., last accessed July 3, 2019.)
Other than providing wireless voice and data services, Rogers Communications Inc. also makes money from its cable and media segments.
And because Rogers stock is listed on both the Toronto Stock Exchange and the New York Stock Exchange, it is very convenient for American investors to own shares of this Canadian company.
Running a Growing Business
If you’ve been following this column, you’ll know that I’m a big fan of established companies operating in markets where competition is limited. And that’s one of most important reasons for investors to consider RCI stock. In Canada, the bulk of the wireless services market is controlled by just three companies: Rogers, BCE Inc. (NYSE:BCE), and Telus Corporation (NYSE:TU).
Under limited competition, firms can earn higher profits than under a perfectly competitive environment.
Business has been going quite well at Rogers. In 2018, the Canadian telecommunications giant grew its revenue by five percent year-over-year to CA$15.1 billion. The company’s adjusted EBITDA increased nine percent to almost CA$6.0 billion, and its free cash flow increased five percent to CA$1.8 billion. (Source: “Rogers Communications Reports Fourth Quarter and Full-Year 2018 Results; Announces 2019 Financial Guidance,” Rogers Communications Inc., January 24, 2019.)
For 2019, management expects Rogers to deliver three to five percent in revenue growth and seven to nine percent in adjusted EBITDA growth. And while the company also plans to spend more money on capital expenditures this year, it is still projected to earn CA$200.0 to CA$300 million more in free cash flow than last year.
Rogers Communications Inc. Is a Solid Dividend Play
As I mentioned earlier, Rogers stock is an overlooked dividend stock. Due to the fact that the company is based in Canada, it doesn’t get much attention from the U.S. financial media. Still, Rogers is doing a great job at returning cash to investors.
Right now, the company pays quarterly cash dividends of CA$0.50 per share, giving RCI stock an annual yield of 2.8%. Over the past 10 years, the stock’s quarterly dividend rate has grown by 72.4%. (Source: “Dividend Information,” Rogers Communications Inc., last accessed July 3, 2019.)
The best part is, despite delivering sizable dividend increases over the years, the company wasn’t really paying out all that much. Last year, Rogers’ dividend payments totaled CA$988.0 million. Compared to its free cash flow of CA$1.8 billion generated during the year, simple math shows that the company had a free cash flow payout ratio of just 56%. This could leave plenty of room for future dividend hikes.
Bottom Line on Rogers Stock
At the end of the day, some might think that because Rogers has already established an entrenched market position, there’s not much room for future growth. But that’s not really the case.
You see, even though Canada has tens of millions of cell phone users, its wireless penetration as a percentage of the population is only 89%. This is substantially lower than many other developed countries, such as the U.S. (123%), Germany (141%), and France (105%). (Source: “Investor Presentation,” Rogers Communications Inc., op. cit.)
In other words, the relatively lower wireless penetration in Canada could translate to revenue growth opportunities for Rogers Communications Inc. At the same time, the trend of increasing video consumption on mobile devices could result in significant growth in wireless data consumption, further boosting the carrier’s business.
Combined with the company’s rock solid-financials and dividend policy, Rogers stock looks like a top income play for 2019 and beyond.