|Forbes.com, Summer, 2012. This article was written with Oliver Pursche, the Co-Portfolio Manager of GMG Defense Beta Fund. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and nearly 100 million page views a month.|
Telecomm companies like AT&T (T), Verizon (VZ) and CenturyLink (CTL) have been long considered manna for investors who like dividends. We couldn’t agree more as we own all three.
However, on a food for thought basis, for investors who like dividends, and like growth too, our good friends to the north at Bell Canada (BCE), Bell Alliant (TSX: BA) and Manitoba Telecomm Services (TSX: MBT) are offering up what I like to think are good opportunities.
Moreover, after an almost 20% rise in AT&T and Verizon over the past year, you could reasonably argue that valuations are a bit rich.
If you are reinvesting your dividends–a great long-term wealth creation strategy–this applies to you also (or especially), since you are buying what might constitute expensive stock each quarter.
In the case of AT&T and Verizon, I think adding new dollars may not be the best allocation of new dollars (we own and plan to continue to hold them), though we would add to CenturyLink (CTL).
Bell Canada is one of the largest phone companies in Canada, offers a solid 5% dividend (higher than both AT&T and Verizon) and a strong balance sheet. Moreover, while T and VZ dividends have been growing at a compound annual growth rate of 4.66% and 4.32% respectively over the past five years, BCE’s dividend growth rate is more than double at 11.03%.
Meanwhile, Bell Alliant, with an indicated payout of C$1.90, has a whopping dividend yield of 7.3% (a component of this is actually a return of investor principal that may be subject to special tax treatment; consult with your tax advisor or CPA prior to investing) that has grown at a compound annual rate of 15.11% over the last five years.
Manitoba actually cut it’s dividend to C$1.70 from C$2.60 in August 2010 as the board of directors lowered the payout ratio to a target rate of 70% to 80% of free cash-flow. The current yield for MBT shares is 5.027%.
Note the figures in the above paragraph are all in Canadian dollars because these stocks trade on the Toronto Stock Exchange. For some of you, currency fluctuation adds an element of risk, while for others, I would hazard a guess these fluctuations add an element of excitement.
If you don’t think you can or want to manage these risks, MBT and BA probably aren’t for you, and I would recommend looking hard at BCE, where you can purchase ADRs with greenbacks on the New York Stock Exchange.
For you remaining readers, my view is the Canadian dollar is due to strengthen against the U.S. over the next 12 to 18 months. I attribute this principally to the disparities in each country’s monetary policies and fiscal status, where our quantitative easing or Operation Twist, or whatever you want to call it, is inherently inflationary, while Canada’s is not. If I am correct, the direction of the currency fluctuation could put a tailwind behind the total return of MBT and BA.