Thursday, April 28, 2011

Bell Aliant (TSE:BA) Dividend Stock Analysis

Bell Aliant was previously an income trust prior to January 1st, 2011 to leverage the tax benefits from the income trust structure in Canada. With the income trust tax changes coming into effect on the first day of 2011, Bell Alliant converted back to a corporation like many other income trusts.

Bell Allian is a telecommunication provider in eastern Canada from Ontario to Nova Scotia. It currently serves 5.3 million customers with an annual revenue of $2.8 billion. Bell Canada (BCE) is a major shareholders with 44% ownership in Bell Aliant which in turn owns a number of other smaller telecom companies. Its focus is on high speed internet and fiber optic development.

I will warn you up front that the numbers and graphs don't represent a solid blue chip company. Part of the reason is the change to a corporation from an income trust. As an income trust, it was partly distributing cash while it is now distributing dividends. It also went from paying dividends monthly to paying quarterly during that change. It would also appear to be focused on broadband and retaining customers as opposed to seek growth in new ventures.

Quick Facts

  • Stock Ticker: BA on TSX
  • Market Cap.: 16.16B$
  • P/E: -
  • Forward P/E: 18.22
  • EPS: $-3.20
  • Beta: 0.265
  • Liabilities to Equity Ratio: 0.01
  • Quarterly Dividends: $0.475
  • Dividend Yield: 7.04%
  • Dividend Payout Ratio: 100%
  • ROE: -
  • 5 Year EPS Growth Average: -40.43%
  • 5 Year Dividend Growth Average: 1.91%
  • 52-Week Low: $24.74
  • 52-Week High: $28.40
  • 52-Week Range: 61.20%
The 1 year chart is showing a relatively flat trend whereas the 5 year chart shows a decline. From a technical analysis perspective, Bell Aliant may have bottom out at this point. However, if interest rates go up, we may see investors moving out if it doesn't show growth.

[caption id="" align="aligncenter" width="400" caption="Bell Aliant 1 year graph"]BA Stock[/caption]

 



[caption id="" align="aligncenter" width="400" caption="Bell Aliant 5 year graph"]BA Dividend Stock[/caption]

Dividend Growth

Bell Aliant prides itself on being a high payout company for income-oriented investors. It's written in white on blue on their latest annual report. When they were an income trust, they used to have a yield above 10% whereas now as a corporation, they have a yield of 7%. Dividend growth is relatively flat with the exception of the spike in 2006. For 2011, the target dividend is at $1.90 below its past dividends which is in line with its change as a corporation since it now pays dividends as opposed to distributable cash.

BA Dividend Growth

Dividend Payout Ratio

The high payout ratio was due to their status as an income trust in the past. I am missing their target ratio now that they are a corporation so it's something to look out for to understand what their target will be. I would like to see it get back to under 80% and later on to 60% possibly. However, since they consider themselves a high payout company, it may stay relatively high with limited growth. If the yield is what you are looking for, it may work for you.

BA Dividend Growth

EPS Growth

EPS have been flat to growing slightly over the past 10 years with the exception of 2010. It reiterates that the company is not necessarily a growth company. Competition and company expenditure were mentioned as reasons for the poor 2010 performances. Indeed, competition is fierce in the telecom industry to the point where Telus and BCE partnered on infrastructure development.

BA EPS Growth

Thoughts

I wasn't really familiar with Bell Aliant and I wanted to understand the company better as it has a really nice yield and I wanted to see if it is sustainable. The 44% ownership by BCE is very interesting as they could always turn it into full ownership or cut bait ... While Bell Canana seem to operate in the large centers, Bell Aliant operates in more rural areas which allows them to grow their businesses without competing directly.

I see Bell Aliant as a sidekick to BCE. Recently, Bell Aliant sold its Xwave assets to BCE which may not have been to difficult to approve. Even though BCE doesn't have a controlling 50%, it's probably able to have some influence in the decisions. As such, BA can be a good income only investment without major growth forecast.

Full Disclosure: No position at the time of writing.

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