TELUS (TSX:T) and Rogers Communications (TSX:RCI.B) are two of the big Canadian telecoms that investors rely on for dividend income. Let’s compare them to see which may be a better buy today.
Business overview
Last year, TELUS generated revenues from 9.69 million mobile phone subscribers (up 4.3% year over year), 2.47 million connected device subscribers (up 16%), 2.41 million internet subscribers (up 6.2%), 1.33 million TV subscribers (up 4.7%), and 978 thousand security subscribers (up 22%). That year, its health services revenue rose 75% to $913 million.
In total, it generated $18.3 billion in operating revenues in 2022 (up 8.6% year over year). It also reported net income of $1.7 billion (up 1.2%) and adjusted EBITDA, a cash flow proxy, of $6.6 billion (up 9.5%).
Rogers Communications generates wireless, cable, and media revenues. The 2022 revenue mix was about 59%, 26%, and 15%, respectively. In total, its 2022 revenue increased by 5% to $15.4 billion, of which 86% was service revenue. Adjusted EBITDA rose 6% to $6.4 billion. And net income climbed 8% to $1.68 billion.
Dividend
TELUS stock has increased its dividend for about 19 consecutive years with a 10-year dividend-growth rate of 8.3%. Currently, TELUS offers a dividend yield of about 6.4%. Management targets to increase its dividend by 7-10% per year through 2025. Sure enough, its trailing 12-month dividend growth was about 7.3%. Investors should note that it aims for a payout ratio of 60-75% of free cash flow.
Rogers Communications stock has the ability to but chooses not to increase its dividend every year. So, it offers a dividend yield of about 3.7%, which is a fraction of TELUS stock’s yield. Rogers’s payout ratio is estimated to be about 47% of its adjusted earnings and 46% of its free cash flow this year. So, Rogers’s dividend appears to be safer.
Past returns
Despite the correction of approximately 30% from its peak in 2022, TELUS stock has still delivered total returns of about 8.4% per year in the last decade. In the same period, Rogers Communications stock delivered total returns of roughly 6.2%.
Which is a better buy?
TELUS’s latest 2023 guidance includes operating revenue growth of 9.5-11.5%, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) growth of 7-8%, and free cash flow of approximately $1.5 billion. Based on this free cash flow estimation and the dividends paid in the last quarter, its forward payout ratio would be about 85%. So, the company might have to reduce its dividend growth guidance, unless it expects its free cash flow to pop up meaningfully in 2024 — potentially from reduced capital investments. At $22.83 per share, analysts believe the undervalued stock trades at a discount of approximately 20%.
Rogers’s latest 2023 guidance includes service revenue growth of 26-30%, adjusted EBITDA growth of 33-36%, and free cash flow of $2.2-$2.5 billion. At $53.55 per share, analysts believe the dividend stock is discounted by about 28%. Although Rogers offers a smaller dividend yield, its lower valuation could drive higher returns over the next three to five years. So, investors should consider buying shares in Rogers Communications first.
