Advertisement
Canada markets open in 2 hours 40 minutes
  • S&P/TSX

    21,639.10
    -59.00 (-0.27%)
     
  • S&P 500

    5,431.60
    -2.14 (-0.04%)
     
  • DOW

    38,589.16
    -57.94 (-0.15%)
     
  • CAD/USD

    0.7276
    -0.0007 (-0.10%)
     
  • CRUDE OIL

    78.39
    -0.06 (-0.08%)
     
  • Bitcoin CAD

    90,465.14
    -991.64 (-1.08%)
     
  • CMC Crypto 200

    1,357.22
    -30.94 (-2.23%)
     
  • GOLD FUTURES

    2,335.60
    -13.50 (-0.57%)
     
  • RUSSELL 2000

    2,006.16
    -32.75 (-1.61%)
     
  • 10-Yr Bond

    4.2130
    -0.0250 (-0.59%)
     
  • NASDAQ futures

    19,698.75
    +13.25 (+0.07%)
     
  • VOLATILITY

    13.26
    +0.60 (+4.74%)
     
  • FTSE

    8,132.38
    -14.48 (-0.18%)
     
  • NIKKEI 225

    38,102.44
    -712.12 (-1.83%)
     
  • CAD/EUR

    0.6792
    -0.0006 (-0.09%)
     

1 Magnificent Dividend Stock Down 23% to Buy Right Now Near a Once-in-a-Decade Valuation

Dots over the earth connecting the world
Image source: Getty Images.

Written by Kay Ng at The Motley Fool Canada

Rogers Communications (TSX:RCI.B) stock has fallen by over 23% since its peak in April 2022. Other big Canadian telecom stocks have experienced similar declines. The stocks of BCE and TELUS are down by 27 to 28% from their 2022 peak.

Dividend stock trading at a decade’s low valuation

At $53.71 per share at writing, Rogers Communications stock trades at a decade’s low valuation at a blended price-to-earnings ratio (P/E) of about 11.5 compared to where it normally trades at, which is a multiple of about 15.7.

Let’s be more conservative and say that it could eventually return to a P/E of 15. This would represent a fair price of $70.33 today. Analysts’ consensus is a 12-month price target is $72.14. This represents near-term upside potential of over 30%, which is very good for a blue chip stock.

ADVERTISEMENT

What’s weighing on the big telecom stocks, including Rogers? Here are some of the factors.

Higher interest rates

The Bank of Canada began raising interest rates in 2022 to counter higher inflation. From 0.25% then, the policy interest rate has increased to 5%. This rapid increase in interest rates has triggered a re-rate in stock valuations, particularly for those (such as the big telecoms) with high debt levels and high dividend yields.

In a higher interest rate environment, it means a higher cost of capital. Businesses with high debt levels will be hit with higher interest rates when it comes time to refinance their debt or when they’re making a new loan. Paying down debt to reduce borrowing costs means that there will be less capital for other things, such as for reinvesting into the business and paying out dividends to shareholders.

When interest rates were low, investors put more money in dividend stocks to earn more income. When interest rates popped back up, investors were able to get similar or higher income from lower-risk, interest investments like bonds and guaranteed investment certificates (GICs). In particular, GICs offer protection of the principal, which allows investors to be worry-free from losing their hard-earned savings.

Market-linked GICs are also available for investors who want to protect their principal and potentially get higher returns if the market does well. However, the appreciation would be lower than if you invested in the actual market because of the principal protection guarantee. There’s no free lunch, after all.

Increased regulatory and pricing pressure

Regulatory pressures are an ongoing issue. For example, an article published in the Canadian Press in December 2023 talked about increased regulation for the industry that pushed for prioritizing consumer rights, affordability, competition, and universal access.

Pricing pressure is another issue. According to an article published in February 2024 on Toronto.com, HelloSafe, a Canadian financial services comparison company, ranked countries around the world for mobile data costs, and Canada came in as the 10th most expensive country for mobile data. The report showed the average cost per one gigabyte of mobile data (based on September 2023 prices) in Canada was $7.36.

Investor takeaway

No matter what, Rogers Communications stock seems to provide the best value of the Big Three Canadian telecom stocks. Although it offers the lowest yield of 3.7%, it has the best coverage for its dividend. It also has a more neutral stock price chart, which shows a multi-year sideways range versus an obvious downtrend for its peers. So, the dividend stock appears to be a good buy right now.

The post 1 Magnificent Dividend Stock Down 23% to Buy Right Now Near a Once-in-a-Decade Valuation 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 $18,271.97!*

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 5/21/24

More reading

Fool contributor Kay Ng has positions in Rogers Communications. The Motley Fool recommends Rogers Communications. The Motley Fool has a disclosure policy.

2024