Rogers Opts For Growth Over Dividend

RCI.B - Rogers

Rogers Communications 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 1.6 million television, 2.5 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 (60% of 2019 revenues), cable (26%), and media (14%). It operates a transcontinental fiber-optic network that extends over 70,000 route kilometres that provides voice and data communications, and data centres and cloud computing services to the enterprise, public sector, and carrier wholesale markets. Sportsnet which is the number one sports media brand in Canada is a part of Rogers’ media assets focusing on live sports and local content. Rogers also has an internet-based Ignite TV platform.

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 with its world-class network and asset mix.

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. In Wireless, Rogers grew its Infinite base to 1.4 million. The Cable business continues to prosper driven by the Internet and the adoption of Ignite TV ending the year with 325,000 subscribers on Ignite TV. The company continues to make good progress on the transition to unlimited data with no overage fees. 

Rogers witnessed strong subscriber growth in both Wireless and Cable offerings, driven by the transition associated with its unlimited data Infinite plans. Rogers’ Infinite and business customers can now access 5G service on Samsung’s Galaxy S20 phones in Vancouver, Toronto, Ottawa and Montreal. The company has promised to hit 20 more markets in 2020. Rogers has established key partnerships to research and commercialize Canadian 5G technology. It launched its first 5G network in Canada earlier this year and has partnered with Ericsson. It plans to spend almost CAD 3 billion in capital to build Canada’s communications infrastructure in 2020. The 5G network will initially use 2.5 GHz spectrum and the second phase of its rollout will add another 600 MHz spectrum. Rogers will also start deploying dynamic spectrum sharing technology, which will allow 4G spectrum to be used for 5G. 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.

Rogers Communications says it might face a material impact, as a result of the COVID-19 outbreak. It has temporarily closed most of its retail locations across Canada. As a leading technology and media company, Rogers continues to operate and maintain its wireless and wireline networks, and media operations, as demand for communications and internet usage has increased during the current time.

Dividends

Rogers Communications has been paying dividends since the last decade and has reduced its payout ratio to 50% in recent times with growth in earnings. The company has a dividend yield of 3.4% and last raised its dividend by over 4%. Though its dividend yield is lower than most of its peers, a low payout ratio indicates a large scope for dividend increase in the future. 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. The company returned $1.7 billion in cash to shareholders through dividends and share buybacks, which increased by almost 70%, in the last year. Total shareholder returns stood at 36% over the past 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. Instead of raising the dividend, the company had strategically deployed its funds towards capital investment and debt reduction and resumed its dividend growth in 2019. The CEO has promised frequent share buybacks in the future.

Rogers is targeting to reduce its leverage to 2.5 times in the future on the back of a healthy business and strong free cash flow. Its balance sheet currently exhibits long-term maturities and low-interest rates. The company is anticipating the first half of 2020 to reflect negative annual growth, while the second half should be better driven by ARPU improvements, greater cost efficiency as well as other cost productivity initiatives. Free cash flow is expected to grow at the rate of 2%-4%.

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 should continue its 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 is the second largest telecom company in Canada.

Other competitors include Shaw Communications and Cameco Corp.. Rogers also competes with other Canadian multi-channel broadcast distribution undertakings and residential high-speed Internet service providers. Rogers’ multi-decade of investment strategy has resulted in the fastest internet speeds across its entire cable footprint. Its sports and media assets offer a good diversification flavor to its communications portfolio.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:BCEBCEBCECommunication ServicesTelecommunication Services0.6656.5651.1517.1313.963.300.05895.891.009143.330.109968Tollbooth - RegulatedNOYESYESNOCanada1
TSE:TTTelusCommunication ServicesTelecommunication Services0.6822.8029.1416.6013.961.370.05115.110.850441.170.120867Tollbooth - RegulatedNOYESYESNOCanada1
TSE:RCI.BRCI.BRogersCommunication ServicesTelecommunication Services0.4655.3328.1914.1213.963.920.03613.610.510242.000.049825Tollbooth - RegulatedNONONONOCanada1
TSE:SJR.BSJR.BShaw CommunicationsCommunication ServicesTelecommunication Services0.4622.3211.4716.7213.961.330.05315.310.8910121.190.053124Tollbooth - RegulatedNONONONOCanada1
TSE:QBR.BQBR.BQuebecor Inc.Communication ServicesTelecommunication Services0.5029.127.3613.6713.962.130.02752.750.375640.800.255554Tollbooth - RegulatedNONOYESNOCanada1
TSE:CCACCACogeco Cable IncCommunication ServicesTelecommunication Services0.65100.194.8210.7713.969.310.02322.320.249242.320.127377Tollbooth - RegulatedYESYESYESNOCanada1
TSE:CGOCGOCogecoCommunication ServicesTelecommunication Services0.6785.001.228.6913.969.780.02242.240.194341.900.156277Tollbooth - RegulatedYESYESYESNOCanada1

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 is targeting simpler and robust data plans for its customers and growing data usage as it paces the 5G path. It may not continue to be a dividend darling but it should certainly do well on the stock front when things get back to normal.

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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