Wednesday, August 13, 2008

The Future of Canadian Dividend Growth II

In the quest to select solid dividend paying stocks that will appreciate over time and pay ever-increasing cash back to us in the form of dividends, success lies in the future, not the past. Sometimes the best dividend growing stocks for the future might be only in their infancy as far as dividend growth goes. As investors, if we can spot these stocks early we can be rewarded in spades as the years go by. A few Canadian companies strike me as fitting into this category very well.

Rogers Communications (RCI.B) operates in three segments: Wireless, Cable and Media in Canada. I'm not sure if you've noticed but a lot of people have cell phones now that didn't five years ago. Cellphones are a way of life in Canada, and with that status they'll join the realm of the household gas bill as far as necessities go. Starting out as a cable company, Rogers has done an excellent job of grabbing more customers by offering products such as home phone, high speed Internet, and in the process undercutting a large, stodgy competitor (Bell Canada). When you bundle all of Rogers products together households are spending upwards of $200 per month for the complete package. This consistent cash flow is the type of revenue that dividend investors should love. Did I mention Rogers runs on the geographically more broadly based GSM network and is the only Canadian provider of Apple's iPhone because of this. I see Rogers having a great future as Canadians move toward higher tech products and services as they age. They are well positioned to complete against competitors like Bell, Telus, and Shaw.

Here is a glance at Rogers Communications' recent dividend activity:

2005 = $0.07
2006 = $0.08
2007 = $0.43
2008 = $1.00 (EST)

This represents a compound annual growth rate of the dividend of 143%. As with Shoppers Drug Mart (SC) the caveat with Rogers Communications as an investment is the stock price. Rogers trades at a P/E of 20x earnings which at first glance seems expensive for a phone/cable company, but when you peel back the layers and really look at this company this may turn out to be a fair price as the stock has come off significantly in recent weeks. The stock currently yields 2.8%. Rogers is just starting out as a dividend growth name, but I have a feeling that in ten years dividend growth investors will look back and wish they had bought this name.

Disclosure - I do not own shares of RCI.B

This article was written by the moneygardener. You may email questions or comments to me at themoneygardener(at)


  1. MG - I try and keep a spot in my portfolio for the companies that I feel will become dividend aristocrats in the next 3 to 5 years. Getting on the train early is a great way to reap major benefits once everyone else starts to realize what is going on with a name. RCIb & SC are great examples of that and I think a lot of the BCE money will flow to Rogers over Telus as a result of their newfound status as a dividend grower.
    Another name I like, although a little expensive and really at it's infancy of dividend growth would be Tim Hortons. They payout between 20 and 25% of net earnings and that gives them room for another 1 cent dividend increase right now which would be the 3rd increase in less than 2 years of being public. But the brand name they have built up ensures them great long term cashflow and I'm hoping they'll become one of the next big dividend growers in Canada!

  2. RCI will probably be the best dividend grower in the next 5 years. Just spins off cash, and if you read the annual report, they want to return it to shareholders.

    That being said, Shaw is very similar but much smaller.

    In the end, we need these kind of companies to round out dividend growth portfolios....can't just keep buying TRP and PWF.


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