With interest rates holding steady and wireless markets still growing, times are good for Canada’s telecom companies, which gives investors even more reasons to take a look at companies like Rogers Communications (Rogers Communications Stock Quote, Chart TSX:RCI.B), according to portfolio manager Chris Stuchberry, who argues that the combination of low interest rates and a healthy, growing dividend makes Rogers a good place to park your money.
Instigated as a way to kickstart the economy in the wake of the 2008 financial crisis, ultra-low interest rates have stuck around a lot longer than many had expected. And while indications last fall were that a higher rate environment could be upcoming, the sentiment proved premature, with both the US Federal Reserve and the Bank of Canada refusing to raise their key lending rates so far in 2019.
In fact, a further drop in rates is a distinct possibility now that signs are showing a slump in the US and global economies. Yesterday, Fed Chairman Jerome Powell said that uncertainty surrounding trade has slowed global growth, hence helping the case for rate cuts in upcoming months.
And the impact on the rate-sensitive utilities sector is clearly visible over the first half of 2019, where the share prices for Rogers, BCE and Telus have all increased as investors shift safe havens from bonds to dividend-paying stocks.
That’s made the telcos more attractive even to less conservative investors, says Stuchberry, portfolio manager at Wellington-Altus Private Wealth, who spoke to BNN Bloomberg on Tuesday.
“Going back to the interest rate environment, a lot of these companies that have the ability to increase their dividend and have been labelled as utility plays can now have a bit of upside,” said Stuchberry.
“For the last several years, I would have been rather negative on a lot of these names,” he said. “[But] I think that when you look at a Rogers now with sort of a flat ten-year to maybe even negative and then you look at their earnings, you’re more than likely to see some increases in dividends and I think you could even see a bit of a multiple expansion if [interest rates] go down further.”
“It’s probably a pretty good place to hide for six months-plus,” he says. Of Canada’s major telco stocks, Rogers’ dividend yield is the smallest at 2.88 per cent. Telus’ yield is currently at 4.66 per cent, BCE’s is 5.29 per cent and Shaw Communications’ yield is 4.41 per cent.