A Stable, Growing 4% Dividend for Your Portfolio

These kinds of opportunities are not particularly common in Canada, but this company fits the bill.

| More on:
The Motley Fool

In Canada, it’s not easy to find safe, growing dividends with a decent yield. This is mainly because our stock market is dominated by volatile sectors like financial services, energy, and materials. But it’s also because there is a very high demand for reliable dividend payers, which pushes up their stock prices, thereby decreasing yields.

On that note, there is one company in particular worth highlighting: Shaw Communications (TSX: SJR.B)(NYSE: SJR). Below we look at three reasons why Shaw is an ideal holding in a dividend portfolio.

1. Subscription-based revenue

This is something that applies to all of Canada’s telecom players, yet still cannot be emphasized enough. When customers must keep coming back to you and pay you regularly for your product, revenue becomes a lot more stable and predictable. Approximately 80% of Shaw’s revenue is subscription-based.

Because of this, Shaw is able to pay out a very high proportion of its earnings as dividends; last year the company paid out over $1 per share to shareholders, a high number considering the company had earnings of only $1.63 per share in fiscal 2013. By comparison, the banks only pay out 40%-50% of earnings to shareholders.

2. A great franchise out west

Shaw is concentrated mainly in western Canada, competing mainly with Telus (TSX :T)(NYSE: TU). Even though Shaw isn’t considered one of the “big three”, it can still hold its own, with about 2 million internet subscribers, 2 million TV subscribers, and nearly 1.5 million phone subscribers.

Being concentrated in one region has its advantages, and is certainly more ideal than being thinly spread across the entire country. It allows Shaw to keep network costs under control. Marketing dollars can be spent in more targeted ways. Also, with a strong regional market share, Shaw gets reasonable pricing power.

This shows up in the company’s numbers, where average revenue per unit has increased by about 27% over the past four years. Shaw also has industry-leading profit margins.

3. A track record of dividend growth

By now, this should not be surprising to anyone, but Shaw is a consistent dividend grower. Just over the past decade, the dividend per share has increased every year, going from $0.02 per share in 2003 to about $1 per share last year.

On that note, Telus has a similar track record. Back in 2003, the company paid out $0.30 per share in dividends, a number that has increased every year since — last year the dividend totaled $1.36 and was raised twice. The two companies have a very similar yield too, with Shaw at 4% and Telus at 3.7%,  so in fact they are both worthy of consideration.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

Investing

2 Great REITs That Won’t Stay Cheap Forever

First Capital REIT (TSX:FCR.UN) and Automotive Properties REIT (TSX:APR.UN) are cheap real estate plays for yield-seeking Canadian investors.

Read more »

shopping online, e-commerce
Tech Stocks

Young Investors: Shopify (TSX:SHOP) Stock May Finally Be Worth Buying

Shopify (TSX:SHOP)(NYSE:SHOP) stock is attempting to stage a bottom, but should investors be buyers amid the market chaos?

Read more »

stock analysis
Investing

3 Ideal Stocks for Your Short-Term TFSA Growth Goals

Depending on what your short-term growth goals are, you can choose from the diverse pool of growth stocks, including linear…

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Investing

1 of the Cheapest REITs in Canada Looks Poised to Soar

H&R REIT (TSX:HR.UN) has become way too cheap to ignore for passive-income seekers who want a great deal from the…

Read more »

Early retirement handwritten in a note
Investing

TFSA Investors: 3 Top TSX Stocks to Buy Now for Early Retirement

Plan an early retirement by maximizing your TFSA and investing in solid stocks like CN Rail (TSX:CNR)(NYSE:CNI) for growth.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Tech Stocks

How to Easily Turn a $25,000 RRSP Into $250,000

You can hold quality growth stocks such as Shopify in your RRSP and benefit from market-beating gains in the long…

Read more »

Retirement plan
Dividend Stocks

3 Retirement Stocks to Buy in Your 20s

A retirement stock is not necessarily something you buy when you retire. It also includes a broad spectrum of stocks…

Read more »

Technology
Dividend Stocks

Dividend Earners: Stay Invested in 2 Low-Volatility Stocks

Dividend earners can stay invested, despite the extreme market volatility provided they shift to two low-volatility stocks.

Read more »