For those new to the blog, I like to keep my readers up to date on portfolio changes. One of the reasons I started this blog was to educate others, but also to improve my own investing. By keeping an open book of my portfolio and changes to it, I hope to generate discussion so others can see how I put my investing philosophy into practice.
On October 8, 2014 I purchased Rogers Communications [TSE:RCI.B Trend] at $42.40 + commission and then later I purchased another lot of shares at $41 + commission on October 15, 2014. I completed a dividend stock analysis of Rogers in 2013 and came up with a target buy price of $38. I updated my target buy to $41 after adding in the 2013 results to my spreadsheet and taking into consideration the 5% dividend increase.
Related article: Rogers Communications: Dividend Stock Analysis
I found out the hard way that you shouldn’t send money from your personal bank account to your wife’s margin account. Apparently they don’t like it. I forgot that the money wasn’t in our joint account, so when the money transferred to Questrade they initially rejected it because it didn’t come from an account that was in my wife’s name. Long story short, it took longer than I expected to get the money in the account and by then the price of Rogers had increased beyond my initial $41. I ended up just buying at slightly above my target buy price. Questrade will charge you a quarterly fee if you have less than $5,000 combined equity in all your accounts and my wife’s account was below this so rather than have cash sitting there earning nothing, I thought it better to just buy Rogers at slightly above my target price.
Why I bought Rogers
- Rogers has been increasing their dividend every year for the past 9 years and I expect this trend to continue. They usually announce dividend increases in February. When I completed my dividend stock analysis in 2013 I estimated that they would grow dividends by 10% on average. Their earnings have since dropped a bit, so I think a better long term average would be around the 6-8% mark. Valueline is currently estimating a 6% average annual dividend growth rate over the next 3 to 5 years. The most recent dividend increase was 5%, but the 5 previous years were all 10% or more.
- They offer a high dividend yield with a reasonable payout ratio. The shares I bought have a yield on cost of about 4.4% and the payout ratio is reasonable at about 60%.
- They were the only Telecom in Canada that dropped below my target buy price. I’d consider investing in Telus [TSE:T Trend] if they dropped in price, but I’m not sure about BCE [TSE:BCE Trend] because it’s payout ratio is high. I think Telus will have better dividend growth than Rogers in the near term, but their yield is lower and they are much further from my target buy price. I like to purchase stocks with some margin of safety so while Telus could be a good dividend growth investment I went with Rogers as it hit my target buy price first.
I’ve listed a few good things about Rogers that I like, but one thing that has me worried is their earnings growth potential. Currently Valueline is estimating an annual growth rate of 2.0% and 2.5% for sales and earnings over the next 3 to 5 years. Yahoo Finance! is estimating a 5 year annual growth rate of 2%. These are low numbers, which means that if future dividend growth is in the 6-8% range then the payout ratio will go up. Telecom companies can typically handle higher payout ratios, but increasing your dividend faster than earnings is not a long term sustainable trend. While the earnings outlook may not be great, I’m happy to collect the dividend which I still expect to increase while the new CEO figures out how to capitalize on Canada’s growing cellular market.
What do you think of my purchase?