Cogeco Growth Plans Focus on US Acquisitions

Cogeco Communications is a leading North American communications company, providing internet, video and telephony services to its residential and business customers. It is a subsidiary of Cogeco Inc. The company operates as Cogeco Connexion in Canada, and Atlantic Broadband in 11 US states. Cogeco Communications Inc. provides its business customers with a suite of information technology services through its business Cogeco Peer 1, and owns and operates 13 radio stations across Quebec through its subsidiary Cogeco Media.

Cogeco Communications operates through three segments:

  • Canadian broadband services (60% of earnings),
  • American broadband services (33%) and
  • Business information and communications technology services (7%).

Cogeco Communications owns extensive two-way broadband fibre networks, 16 data centres, and spectrum licenses of significant capacity which has helped the company to retain a leading position.

Given the company’s strong presence in North American markets and superior internet speeds and video services, it has developed sticky customer relationships. Cogeco is in a good position to cross-sell its services to existing customers and attract new customers.

Investment Data

Revenue Growth & Market Exposure

With more than six decades of existence, today, Cogeco Connexion is the second largest cable system operator in Ontario and Quebec while Atlantic Broadband is the ninth largest cable provider in the US. The company has a presence in Canada (60% of revenues), USA (39%) and European (1%) markets.

Cogeco Communications registered a growth of more than 10% and 9% in revenue and EBITDA terms respectively, in FY 2018. The company expects fiscal 2019 revenue to grow by 6%-8%, and free cash flow between 18% and 25% through a mix of organic growth and the MetroCast acquisition (completed in FY 2018). It is targeting growth through value added services such as high internet speeds, superior video platform, new intelligent in-home WI-FI features and the IPTV platform. Cogeco plans to enhance its services in MetroCast markets by rolling out increased speeds and advanced TiVo services. The company is investing to improve its network technology and sees entering into the wireless services market in Canada as an opportunity. It thinks conditions are now conducive for a more favourable regulatory environment to support the emerging 5G technology.

Cogeco’s Atlantic Broadband business is expected to benefit from a reduced Federal and State corporate income tax rate (from 40% to 27%) effective from January 2018. In addition, MetroCast’s tax-deductible intangible assets entitle Cogeco to reduced cash tax rate beyond FY 2023.

Cogeco Communications has planned to prioritize capital expenditure towards the acquisition of cable networks in the US, followed by maintenance and expansion of existing cable networks and lastly towards wireless services in Canada.


Cogeco Communications ranks amongst the industry’s best dividend stocks with a current dividend yield of over 3%. The company has consistently increased its dividend in the past, maintaining a dividend CAGR of 11% over the last five years and an impressive 21% over the previous decade.

CCA - Dividend Growth
Source: CCA Investor Update

Cogeco Communications last raised its dividend by more than 10% and sports a payout ratio of 29%. The company pays a quarterly dividend of $0.525 per share (raising it from $0.475 per share for FY 2018), representing $2.10 per share annually. This marks the company’s 15th consecutive year of annual dividend hike. Cogeco Communications aims to have a very conservative dividend payout ratio of 26% going forward.

Cogeco Communications reported a decrease of 27%year-on-year in its annual operating cash flow mainly as a result of deferred tax payment and integration costs related to the MetroCast acquisition. However, the company is expecting its cash flow to increase between 18% and 25% for FY 2019 reflecting the full year impact of the MetroCast and FiberLight acquisition. The company is in a good position to benefit from increasing demand for internet services and rate increases for most services. The Business ICT services segment is also favourably placed to benefit from growth in colocation and hosting services.

Strong Canadian franchises, good acquisition strategy, solid asset base and a large geographical footprint are Cogeco Communications’ key competitive advantages. A growing cash flow should help Cogeco Communication maintain its streak of annual dividend hikes in the future.


Cogeco Communications operates in a highly competitive industry which is prone to disruption from new technologies. BCE is Cogeco Communications’ largest competitor offering a full range of voice, Internet and video services to residential and business customers in the provinces of Quebec and Ontario, while Telus competes in parts of Quebec. Both of these integrated telecom players are in the process of deploying IP television services which will compete with the services offered by Cogeco Connexion. Shaw Communications’ Shaw Direct, competes for video customers throughout Cogeco’s Canadian footprint.

BCE TSE:BCE, Shaw Communications TSE:SJR.B, Telus TSE:T, Rogers Communications TSE:RCI.B and Videotron are also promoting their wireless technology within Cogeco’s network footprint. In the US, the company faces intense competition from the likes of AT&T NYSE:T, Verizon and Frontier Communications, Comcast etc.

Bottom Line

As one of the leading communications company, Cogeco should benefit from increasing demand for data and communication services. Though increasing competition is an ever-present risk, given its large footprint, competitive products and services, increased investment in futuristic Wi-fi and TV features, Cogeco is clearly ready for the future.

The company is also focusing to drive customer growth through bundled product packages and fast internet speeds. Sustainable cash flows, a moderate dividend payout, well defined future plans and a sound track record of past dividend payments are all indicators of Cogeco’s dividend safety. Conservatively speaking, the company should keep growing its dividends in the high single digit range going forward.

Cogeco’s growth will be its ability to acquire more US company, improve the integration cost and optimize profits through their offering. The current footprint in the US provides Cogeco a strong base.

Cogeco US Footprint
Source: CCA Investor Update

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