Yahoo Finance Beat the TSX With This Cash-Gushing Dividend Stock
Written by Kay Ng at The Motley Fool Canada
Rogers Communications (TSX:RCI.B) is a tad different from other big Canadian telecoms. It has a stagnant dividend. On the surface, this may seem like a bad thing for investors. Who doesn’t want a growing dividend? However, precisely because it has maintained the same quarterly dividend since 2019, its dividend has better coverage.
Here’s a business overview of Rogers Communications
In 2023, about half of its revenues were generated from its Wireless segment, of which 76% were service revenue. And about 36% and 12%, respectively, of the remaining revenue came from its Cable and Media segments. Its Wireless segment made close to 73% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), a cash flow proxy. Its Wireless segment also had the highest adjusted EBITDA margin of 63.9%, which expanded 1.2%, followed by its Cable segment that had an adjusted EBITDA margin of 53.9%, helped by a 3.3% expansion.
The dividend stock’s 2023 results
In 2023, Rogers generated $19.3 billion in revenue, which increased 39% from 2020. As well, it reported a gross profit of $8.6 billion and operating income of $4.5 billion. They rose by 47% and 38%, respectively, from 2020.
The company also reported adjusted EBITDA of $8.6 billion, an increase of 34% year over year, with the help of a margin expansion of 2.9% to 44.4%.
The adjusted net income rose 26% year over year to $2.4 billion. Ultimately, the adjusted earnings per share came in 21% higher at $4.60, resulting in a payout ratio of about 44%. The payout ratio was 81% of free cash flow.
In 2023, the dividend stock hardly moved when comparing where it started at the beginning and end of the year. Specifically, the stock was down 2%, closing the year at about $62 per share, while the total return was 1%.
A value stock with stable growth
The value stock is trading at even cheaper levels today. It just pulled back meaningfully by 16% from earlier this year to $53.53 per share at writing. This is a price-to-earnings ratio of about 11.4 – a decent discount of about 24% from its long-term normal valuation. Indeed, TMX Group (TSX:X) indicates that the analyst consensus 12-month price target on the stock is $72.23, representing a discount of 26%, or near-term upside potential of 35%.
The reason for the pullback may be the weakness of its first-quarter (Q1) results. For Q1 2024, Rogers reported revenue growth of 28% to $4.9 billion but adjusted earnings per share was $0.99, down 9%. The stock is seemingly rebounding from the $52 level. So, now could be a good entry point for a turnaround.
Rogers Communications generated operating cash flow of $5.2 billion last year, up 21% from 2020. In the past two years, Rogers used almost 75% of its operating cash flow for capital investment, up from 61% from 2020–2021. A reduction in capital spending could substantially boost the big telecom’s free cash flow generation. Even a dividend hike could be in the cards.
Regardless, the blue chip stock has a good chance of delivering adjusted earnings per share growth of at least 6% per year over the next five years. Along with its dividend and potential valuation expansion, it should result in solid returns in the period. Currently, RCI.B stock offers a dividend yield of 3.7%. Assuming some valuation expansion to 13.5 times earnings and a 6% earnings growth rate, the stock could deliver nice total returns of about 12% per year over the next five years.
The post Beat the TSX With This Cash-Gushing Dividend Stock appeared first on The Motley Fool Canada.
Should you invest $1,000 in Rogers Communications right now?
Before you buy stock in Rogers Communications, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rogers Communications wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $15,578.55!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 3/20/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
Fool contributor Kay Ng has positions in Rogers Communications. The Motley Fool recommends Rogers Communications and TMX Group. The Motley Fool has a disclosure policy
2024
