Rogers Opts For Growth Over Dividend

RCI.B - Rogers

Rogers Communications, Inc. is a diversified communication and media company in Canada. It is the largest wireless and cable TV provider in the country.

Rogers Communications has an extensive cable footprint across Canada with 1.7 million television, 2.4 million internet, and 1.1 million phone subscribers. Its wireless subscriber base is approximately 10.8 million. Rogers is known for delivering the fastest internet speed to its customers. Almost all of Rogers’ businesses are based in Canada and it operates under three strong brands, Rogers, Fido, and Chatr Mobile.

The company has diversified revenue streams comprising of wireless (67% of 2018 earnings), cable (30%), and media (3%). Sportsnet which is the number one sports media brand in Canada is a part of its media assets focusing on live sports and local content. Rogers has also launched an internet-based Ignite TV platform to increase its subscriber base.

Investment Data

Revenue Growth & Market Exposure

Rogers Communications reaches out to almost 98% of the Canadian population, through its wireless, cable, business services, media, and sports operations. Investments in multi-band LTE wireless network and prime 700 MHz spectrum have started to bear fruits. Today, Rogers is not only the largest provider of wireless voice and data communications services in Canada but also one of the leading providers of cable TV and high-speed Internet to consumers and businesses in the country.

Over 90% of Rogers’ total revenues are from services rendered, which makes cash flows highly safe and recurring in nature. The company continues to make investments in the latest generation equipment and coax cable network in order to drive cost, speed, and spectral efficiency. The company is upgrading its 4G network to make it 5G-ready. It also has the lowest churn rate among postpaid customers. Rogers is enhancing its cable offerings with Ignite TV, an all-IPTV platform licensed from Comcast. It grew cable households for the third consecutive year in 2018. All-IPTV, premium services, and continued innovation solidify Rogers’ reputation of an undisputed connected home service provider.

Rogers is expecting to grow its revenue by 3%-5% during this year. The company is witnessing strong momentum in its wireless business. Ownership of extensive network infrastructure consisting of a hybrid fiber-coax cable network and strict regulations act as strong entry barriers for new entrants. Growing demand for data and wireless growth potential in Canada act as significant revenue drivers for Rogers Communications. The company is favorably placed to gain from these growth trends given its world-class network and asset mix.

Dividends

Rogers Communications has been paying dividends since the last decade and has reduced its payout ratio to 51% in recent times with growth in earnings. It is targeting a 7%-9% EBITDA growth in 2019. The company has a dividend yield of 2.9%. It has compounded its dividend growth at 5.5% annually, over the last decade. Rogers’ earnings have grown at an impressive 15% CAGR over the last three years.

Rogers has generated total shareholder returns of 178% over the last decade and has doubled its market value in the last nine years. The company last raised its dividend in January this year by more than 4%. A dividend increase was long overdue (last increased in 2015) for Rogers Communication, though the company was paying them regularly during the period 2015 to 2018. Instead of raising the dividend, the company strategically deployed its funds towards capital investment and debt reduction and resumed its dividend growth in 2019 as profits beat expectations.

The company is still gung-ho about its capital investment plan and has pledged to spend between $2.85 billion and $3.05 billion on capital projects in 2019. Though the CEO has not vowed to consistent dividend increases, he has promised frequent share buybacks in the future.

“What you will see from us is a bias more toward share buybacks in the future overall. What we don’t want to do is be stuck in a cycle of annual dividend increase commitments,” said CEO Joe Natale on a conference call. 

Strong wireless and residential wireline operations and market leading media assets generate strong and reliable cash flow for Rogers Communications. The company generates large free cash flows to maintain both capital investment and shareholder returns. It last raised its payout by 5% and should continue its single-digit dividend growth streak in the future supported by its strong balance sheet and healthy liquidity.

Competition

Though the telecommunications industry is highly capital-intensive in nature, it is very competitive in Canada. Rogers Communications faces competition from the likes of BCE and Telus. Bell Canada Enterprises is Canada’s largest telecommunications company serving more than 22 million customers across the country, while Telus Corporation is the second largest telecom company in Canada.

Other competitors include Shaw Communications

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderGraph
BCEBCECommunication ServicesCommunication Services5463.2157.1219.1017.953.315.0295.7743.1710.131
RCI.BRogersCommunication ServicesCommunication Services6662.4531.8815.5314.914.043.2049.5042.003.201
TTelusCommunication ServicesCommunication Services6849.8729.9717.3216.952.884.5178.1342.2512.231
SJR.BShaw CommunicationsCommunication ServicesCommunication Services5926.7313.8318.8218.871.424.4383.45121.194.841
QBR.BQuebecor Inc.Communication ServicesCommunication Services5031.748.1214.6314.112.551.4217.6540.4515.851
CCACogeco Cable IncCommunication ServicesCommunication Services77110.225.4513.2214.178.412.1027.5942.3212.821
CGOCogecoCommunication ServicesCommunication Services70100.341.6211.400.008.862.3126.1942.3217.531

Bottom Line

Rogers is one of the top three largest national wireless carriers in Canada. The company has diversified revenue streams with solid growth profiles. Rogers is in a good position to benefit from revenue growth opportunities in Canada and significant growth in data consumption. Key investments in building the most secure 5G network in the world should improve customer service and drive significant growth in the future. The company has already resumed its dividend growth as promised earlier and has committed to share buybacks in the future.

It may not continue to be a dividend darling but it certainly does well on the stock front. You may have to chose between stock appreciation and dividend growth. The strategy is clear as outlined by the CEO that they will not blindly focus on paying dividends.

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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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