Competitors expected future dividend growth
With Shaw Communications monthly dividend of $0.0850 CAD and its current price around $23, it is yielding around 4.4%.
TELUS Corporation (USA) (NYSE:TU) has already stated in the past that it would increase its dividend by 10% for 3 years with the last 10% annual increase coming in 2013. This takes a lot of the guess work out for this year, but what about after that. In their 2012 Annual Report they stated that they would be targeting a payout ratio of 65% to 75%, which is a 10% bump up from their previous targets. Using these payout ratios and the analysts 5 year annual EPS growth estimate of 8%, I’d guess that annual dividend growth for the next 5 years will be around 8.0% to 11.1%. This suggests a better growth rate than Shaw Communications Inc (USA) (NYSE:SJR), but Telus currently has a lower dividend yield of around 3.5%.
BCE Inc. (USA) (NYSE:BCE) is the opposite of Telus as it offers a higher yield currently around 5.1%, but low dividend growth prospects. BCE’s payout ratio from its most recent fiscal year end was 65.5%, which does not allow for much dividend growth beyond its EPS growth rate. Analysts expect EPS to grow 1.5% annually for the next 5 years, which suggests limited future dividend growth. Even if BCE increased their payout ratio to 75% this would still only result in an average dividend growth rate of 4% annually for the next 5 years.
Rogers Communications Inc. (USA) (NYSE:RCI) pays out a quarterly dividend of $.0435 CAD which translates into roughly a 3.5% yield at current prices. This is lower than Shaw Communications Inc (USA) (NYSE:SJR)’s current yield and around the same as Telus. Rogers Communications payout ratio was just under 50% at its most recent fiscal year end, which is roughly where it’s been for the past 4 fiscal years. Its 5 year average comes in just a little over 50%, so it looks like Roger’s has been targeting roughly a 50% payout ratio. Analysts expect EPS to grow 4.4% annually for the next 5 years, which suggests annual dividend growth of 4.2% if they keep their payout ratio at 50%. While this is a lower expected dividend growth rate than Telus and Shaw Communications, Rogers Communications still has a much lower payout ratio. A lower payout ratio means more potential for dividend growth. If the payout ratio was increased to 60% or 70% this results in 5 year annual dividend growth rates of 8.0% and 11.4%, respectively.
Conclusion
Overall Shaw Communications shows some good numbers when looking at the past 10 years, but more recently the company has seen a loss of customers to their main competitor Telus and their 5 year history isn’t as compelling. Their dividend growth has been great, but I expect future dividend growth to be in the range of 5.2% to 8.5%, likely on the lower end of this range. While these are respectable dividend growth rates, I’d expect better rates from Telus and potentially Rogers Communications if they increase their payout ratio.
For the complete analysis of Shaw Communications and my target buy price check out this article.
The article Looking for Dividend Growth in the Canadian Communication Industry: Shaw Communications originally appeared on Fool.com and is written by Michael Weber.
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