Should You Buy Rogers Communications Inc. Around Earnings Report Time?

Should you buy Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) or its competitor?

| More on:
The Motley Fool

Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) is reporting its second-quarter earnings results on Thursday. Should you buy it today? First, let’s take a look at Rogers’ business, and then compare it with its competitor.

The business

Rogers is one of the three biggest telecoms in Canada. It is Canada’s biggest wireless voice and data communications services provider. It is also Canada’s largest cable television provider of cable television, high-speed Internet, telephone services, and video retailing.

Earnings and valuation

Other than showing a trend of decreasing earnings, Rogers is also losing to the competition. Its operating margin in 2013 was 23%. In 2014 it was 20.7%. And now its trailing 12-month operating margin sits at 19.8%.

Year Earnings Growth
2011
2012 14%
2013 -1.2%
2014 -20.5%

Going forward, its earnings are only expected to grow at 3% in the foreseeable future. With its price-to-earnings ratio around 15, there’s no discount on Rogers’s shares.

Dividend comparison

At about $44 per share, Rogers yields 4.3%. Although there’s no immediate danger to its dividend, the payout ratio has been expanding, which is generally a bad sign.

Between 2009 and 2013 its payout ratio was at a high 40%. Now, it’s at a 10-year high of 74%. The high payout ratio is due to decreased earnings. If Rogers does not fix its earnings growth, its dividends won’t be able to grow healthily.

Looking at Rogers’s dividend growth, it was only able to grow it by 5% per year in the last two increases. With an initial look, it’s keeping pace with inflation. However, other than comparing it with its own history, investors should also compare it with its peers to decide which is the better investment.

Here I’m comparing the dividend-growth rates between Rogers and Telus Corporation over various periods.

Telecom 1-Year DGR 3-Yr DGR 5-Yr DGR
Rogers 5.2% 8.8% 9.9%
Telus 11.8% 11.3% 9.9%

As we can see, in recent years Telus’s dividend growth has picked up while Rogers’s has slowed down. Telus’s dividend growth is also supported by earnings growth. Particularly in 2013 and 2014, Telus’s earnings grew 18% and 11%, respectively.

Should Foolish investors buy today?

Unless Rogers Communications shows signs of increasing its earnings again, I don’t see why Foolish investors should buy its shares. Rather, it would be a better investment to buy its competitor, Telus, which has been expanding its operating margin in recent years and has been increasing its earnings each year at a rate at least double that of inflation. That said, Telus is fully valued today and would be a better buy at a 4% yield or higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of TELUS (USA). Rogers Communications is owned by the Motley Fool Pro Canada. Rogers Communications is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »

A meter measures energy use.
Dividend Stocks

Is Fortis Stock a Buy, Sell, or Hold for 2025?

Fortis has increased its dividend annually for the past five decades.

Read more »

analyze data
Dividend Stocks

3 Dividend Stocks That Are Screaming Buys in November

Here are three top dividend stocks long-term investors won't want to ignore during this part of the market cycle.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Generate $175/Month in Passive Income With a $30,000 Investment

Dividend aristocrats offer reliability, and many of them also offer generous yields. With sizable enough discounts, these yields can become…

Read more »

dividends can compound over time
Dividend Stocks

Best Dividend Stocks to Buy Now for Canadian Investors

These three stocks would be excellent additions to your portfolios, given their solid underlying businesses, consistent dividend growth, and healthy…

Read more »

data analyze research
Dividend Stocks

3 Undervalued Stocks to Watch in November

Not all undervalued and discounted stocks are destined or poised to make a comeback soon, and a protracted timeline can…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

The Perfect TFSA Stocks for Long-Term Growth

Two industry heavyweights are perfect stock holdings in a TFSA for long-term money growth.

Read more »