Interested in a Canadian telco during COVID-19?
It’s not a bad play, says portfolio manager Lorne Steinberg, but you’re likely to do better with BCE (BCE Stock Quote, Chart, News TSX:BCE) over Rogers Communications (Rogers Communications Stock Quote, Chart, News TSX:RCI.B),
It’s earnings season and Canada’s Big Three telecom companies are breaking the news to investors, starting with Rogers who delivered disappointing second quarter results on Wednesday.
Revenue was down 17 per cent year-over-year to $3.16 billion while adjusted earnings came in at $0.60 per share, down from $1.16 per share a year ago.
Analysts had been expecting $3.18 billion in revenue and adjusted EPS of $0.73 per share.
Rogers said that COVID-19 impacted business across the board, from its sports and media business which saw no action in either Major League Baseball or the National Hockey League during the Q2 to its roaming wireless business which plunged 90 per cent in revenue from a year earlier due to home-bound customers during the pandemic.
“We saw notable impacts across all of our businesses as sales and new business activity essentially ground to a halt,” said Rogers president and CEO Joe Natale in the quarterly earnings call. “These metrics are COVID-19 specific and do not reflect our underlying fundamentals, nor do they diminish our long-term growth prospects.”
Rogers’ share price dropped substantially on Wednesday before recovering but the stock remains down 14 per cent for the year, a significant decrease for a name in the relatively stable utilities field.
The situation is the same for BCE and Telus (TSX:T) which round out Canada’s top three telcos. BCE is down seven per cent for 2020 and Telus is off by eight per cent.
Steinberg, president of Lorne Steinberg Wealth Management, says there’s still a good justification for buying Canadian telcos but investors should be aware that growth prospects are diminished in the sector, leaving the dividends as the main attraction.
“In our Canadian dividend fund we own BCE and Telus but we don't own Rogers,” said Steinberg, speaking on BNN Bloomberg on Wednesday. “The whole sector is dealing with people cutting off cable, especially young people, and everybody's already got a wireless device so growth is definitely slowed. Maybe 5G will bring some growth. But for all these companies the dividends are very secure.”
“BCE has done a fantastic job and so BCE is basically our top pick in that sector,” Steinberg said. “We favour BCE and Telus right now because we think they're better positioned in their respective markets. BCE has done a great job in managing costs and their dividend is probably trying to grow a little bit faster than the competition. CraveTV and some of these other areas will also give BCE some growth.”
By comparison, Rogers’ dividend yield currently sits at 3.6 per cent, Telus’ is at 5.1 per cent and BCE’s is at 5.9 per cent.
Telus is set to report its second quarter next week, with BCE coming the week after.
“They're all similar-type businesses facing the same challenges,” Steinberg said. “There are just pressures on the telco business in general. So, it's a mature industry with strong dividends.”