Portfolio Update: Rogers Communications Purchased

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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?

 

Photo credit: shinealight / Foter / CC BY-SA

14 comments to Portfolio Update: Rogers Communications Purchased

  • Len Petry

    Smart move. I bought Rogers earlier, at a higher price unfortunately ($43.62).

    I used the lowest of the 1,3, 5 and 10 year dividend growth rates to project Rogers’ dividend in ten years, and got a dividend of $4.73, and a yield on cost of 10.84% . I used the one-year growth rate of 10.13%

    If the dividend growth rates drops to 6% (per Valueline), then the YOC drops to 7.82% in ten years, and I would look for a replacement. But I prefer to estimate dividend yields based on actual past numbers than future guesstimates, even by Valueline.

  • Len Petry

    By the way, how do you estimate the target price (fair value?) of a stock? Is there an article in your site?

  • helen7777

    I would also like to learn how to determine the FAIR VALUE of any stock.

  • I’m wondering why you would not have purchased Telus instead. The following info about Telus is from a recent Globe and Mail article on DGI companies.
    “Yield: 3.8 per cent3-yr. annualized div. growth: 11.2 per cent Telus doesn’t just raise its dividend regularly – it tells investors ahead of time when it’s going to do so and by how much. In May, 2013, it pledged to hike its payment twice a year through 2016 – in May and November – at an annual rate of about 10 per cent. So far, the hikes have come right on schedule but have been bigger than the company had originally pegged them. Government intervention in the wireless sector poses a risk, but Mr. McHugh believes Telus has a secure future.

    • Telus has a lower dividend yield, higher payout ratio and its price is above my target buy price. Telus looks like it will have better dividend growth and earnings growth in the near term, so it could be a good investment. Ultimately I didn’t buy because it didn’t drop below my target price. It’s not that I don’t think Telus isn’t a good dividend growth stock, its just that I’m not willing to invest unless I get a certain margin of safety.

  • I’m long on Rogers too. Great buy.

  • RICARDO

    It is all subjective and depends partially on which crystal ball you use.
    Personaly I prefer BCE. WHY? It pays a higher dividend and they have been raising it over the last few years as well.

    “BCE reports Q4 and 2013 results, announces 2014 financial outlook
    04:00 EST Thursday, February 06, 2014
    Common share dividend increased 6.0% to $2.47 per year”

    So with dividend increases like that it is hard to argue against them,
    I have followed Telus for two years as some one much better educated in stocks than I said that T had a better potential for capital apprecaition. They have maintained an $8 – $10 differential over that period. So there was no big differential in capitals gains one over the other as both went up in fairly lock step. In the mean time I have been paid an extra 1% to hold them. Also divident increases are subject to compounding as well. 6% on a $2 (0.12) =$2.12 dividend is not as much a 6% on $2.12 (0.12.72)
    = $2.25
    Over time that can add up as well. Mind you Telus has not been a slouch with the divs either sometimes raising twicein one year (BCE has done this as well).
    I have not real;y followed RCI so I would be remiss to comment on them. They do have the NHL to help contribute to earnings for the next few years. BCE purchased CTV as well as BA (I sold too early) and that will , hopefully, contribution even more to earnings as time moves forward

    • BCE has had good dividend growth, but when I looked at them their payout ratio was pretty high. This could limit high dividend growth in the long term. I think this could be a high yield slow dividend growth stock in the long term. There is nothing wrong with this, but it’s not what I’m looking for right now.

  • Len Petry

    Also, BCE just received and EPS estimate downgrade, which is usually a downward pressure on the stock price.

  • DGIR,

    First time commenting! Very nice purchase. Large telecommunication stocks are always a nice addition to a dividend growth portoflio. While the dividend growth is lower than you expected, it still is greater than the two telecom giants here in the US, VZ and T. So at least you have that to hang your hat on. I am not too familiar with the Canadian market. How many major telecom players are in the industry? Is it a comptition between Rogers and Telus?

    Looking forward to reading more articles. COngrats on the purchase and adding new dividend income to your portfolio!

    Bert, One of the Dividend Diplomats

    • Hey Bert,

      Thanks for stopping by. In Canada we have three major players: Rogers, Telus, and Bell (BCE).

      I had a look at your blog. You guys seem to be on the right track (saving a high percent of your wage and investing it).

      Do you use David Fish’s Champion list to screen for US companies with long dividend streaks?

      • Awesome. So your telecom industry is similar to ours. A few major players that own most of the market share. Since the market is growing in Canada, you made a very smart move to swoop up shares in one of the giants.

        Thanks for stopping by our blog! We believe that having a high savings rate and dividend growth investing are the keys to reaching financial freedom. You need fuel to drive the engine, so it is critical to ensure you have enough funds to keep the dividend growth snowball running (I just used way too many analogies in this paragraph).

        We do not use David Fish’s list for our screening, but I will definintely check it out. Dividend growth is usually the last metric I use in our screener. I start by focusing on P/E and payout ratio and I usually only have a handful of companies that survive this screen. Once I find the handful of companies to analyze further, I will take a look at the dividend histroy myself to assess their growth. It isn’t as burdonsome as it sounds once you identify the few stocks that we need to review.

        Bert

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