Rogers Stock Rose 10% in November: Is it a Buy Today?

Which is a better in the Canadian telecom sector: BCE or Rogers stock?

| More on:
stock research, analyze data

Image source: Getty Images

Telecom stocks changed course recently after their months-long weakness amid rising rates. Shares of Canada’s biggest telecom company by subscribers, Rogers Communications (TSX:RCI.B), rose 10% last month, reaching its six-month highs.

Telecom stocks are perceived as defensives due to their less volatile stock price movements and stable dividends. However, these defensives were not that effective this year because of the rapid interest rate hikes.

Should you buy RCI.B stock?

In the last 12 months, Rogers stock has returned 9%. A large part of the stock’s recovery came after mid-October on the hopes of slowing the rate hike pace. Peers BCE (TSX:BCE) and Telus returned a mere 2% each in the same period. While Rogers stock has outperformed peers in the last year, it has been a laggard in the last five years.  

Rogers caters to more than 11 million wireless subscribers, the highest among the top three telecom players in Canada. It is the smallest company by market cap among these three. Canadian telecom is an oligopolistic industry, with close to one-third market share each.

Rogers derives its revenue from three main segments. Wireless contributes 60% to the total revenues. Media and Cable account for the rest, with 13% and 26% contributions, respectively.

For the third quarter of 2022, Rogers reported a net income of $371 million — a decline of 24% year over year. It has seen encouraging growth in the wireless segment this year. Year to date, Rogers has seen net wireless additions of 448,000 — up 137% from last year.

Rogers-Shaw Communication pending merger

The Rogers-Shaw Communications merger is uncertain, as approvals from key regulatory authorities are still pending. In August 2022, Shaw agreed to sell its wireless segment, Freedom Mobile, to Videotron. The sale will likely turn the case towards completing the transaction with an expected moderation in the market share.

If the merger goes through, it could substantially increase Rogers’s scale and market position. It could accelerate the 5G rollout and, ultimately, top-line growth in the next few years. However, Rogers’s balance sheet position could deteriorate. It is currently heavily indebted, and the transaction completion could further increase its leverage.

Moreover, incremental capital spending ahead of the 5G network expansion will likely drive the debt pile even higher. It currently has a debt-to-equity ratio of 3.3 and a debt-to-EBITDA ratio of over five. EBITDA stands for earnings before interest, taxes, depreciation, and amortization.   

On the dividend front, Rogers yields 3% — the lowest among its peers. BCE and Telus yield 6% and 5%, respectively. Interestingly, all three leading carriers currently trade 20 times earnings and look fairly valued.

Bottom line

Rogers stock might trade subdued going forward, and the Shaw transaction could be delayed. Plus, how the profitability transforms with higher debt and increased capacity post-merger remains to be seen.

BCE looks better placed for long-term investors with its relatively lighter balance sheet and superior dividend yield. For the last few years, it has been aggressively spending capital on network infrastructure and 5G expansion. BCE’s higher dividend visibility, fair valuation, and scale could create superior shareholder value in the long term.

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.

The Motley Fool recommends Rogers Communications and Telus. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Dividend Stocks

Dividend Stocks

The 2 Best Canadian Blue-Chip Stocks to Buy Now

Blue-chip stocks can be some of the best stocks to have in any portfolio. But when they're trending upwards, investors…

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »