Should You Buy Shaw Communications Inc. for Income and Growth?

Buying shares in Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) today could lead to a nice return over the next five years, while getting 4% income to wait.

| More on:
The Motley Fool

It’s nice to receive monthly income because it helps pay monthly bills such as utilities, gas, internet, and phone. Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) is one company that pays out a monthly dividend. Since reaching its all-time high of roughly $32 earlier this year, Shaw Communications has retreated to its present price of around $29. Is now a good time to buy?

About Shaw Communications
Shaw Communications is Western Canada’s leading network and content-experience company. It serves 3.2 million customers through a reliable and extensive fibre network. It is a diversified communications and media company with revenues coming from different sources: 29% from cable, 22% from internet, 18% from media, 17% from satellite services, and 14% from telephony.

Dividend history and growth
The dividend yield is one indicator for whether a company is a good buy at today’s price. The company currently yields 4.1%, which is at the high-end of its historical range. In the past five years, its yield range has been between 3.1% and 4.1%.

Shaw Communications has paid out growing dividends for 12 consecutive years. Its historical dividend growth rates show consistent growth in the single digits. Its one-year dividend growth rate is 7.4%, the three-year rate is 6%, and the five-year rate is 5.5%. Its payout ratio is at 60% at the middle of its historical range.

Shaw pays out a monthly, eligible dividend that can be reinvested to buy more shares through a dividend reinvestment program. Once enrolled in the program, the dividends are reinvested at a 2% discount to the market price.

What can investors expect in the future?
The company’s free cash flow has been positive for the last 10 years. So, even during the financial crisis of 2008-2009, Shaw Communications generated strong cash flow. This shows Shaw is a profitable business generating stable cash flow. As a result, I expect it to continue growing its dividends annually at a rate of 5-8%, and I expect it to be an investment that will steadily appreciate in price over the long haul.

To give a clearer picture, Value Line, an independent investment research and financial publishing firm, projects Shaw Communications’ price to be between $35 and $45 by 2020. If this materializes, investors buying today around $29 could see capital gains of 20.7% to 55.2%. And you get paid 4% a year to wait.

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 Kay Ng has no position in any stocks mentioned.

More on Investing

oil and gas pipeline
Energy Stocks

3 High-Yielding Energy Stocks to Buy Amid Rising Volatility

These three energy stocks can boost your passive income.

Read more »

Wireless technology
Tech Stocks

3 Tech Stocks Worth Buying Today

Looking for tech stocks to add to your portfolio? Here are three top picks!

Read more »

Question marks in a pile
Tech Stocks

Should Canadians Be Worried About the Snapchat Stock Plunge?

Social media stocks lost US$180 billion in value on Tuesday, as shares of Snapchat (NYSE:SNAP) stock dropped by 41%, below…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Stocks for Beginners

Got $3,000? 3 Top TSX Stocks to Buy Today

Looking for growth along with dividends? Here are three top TSX stocks.

Read more »

sad concerned deep in thought
Stocks for Beginners

Inflation Have You Scared? Why You Should Invest Anyway

Inflation can be scary, but don't let it get in the way of your long-term goals. By figuring out what…

Read more »

edit Person using calculator next to charts and graphs
Stocks for Beginners

2 Cheap Canadian Stocks (Under $5) to Buy Today

Despite the recent market weakness, long-term investors can buy these two cheap Canadian stocks today to get solid returns in…

Read more »

TIMER SAYING TIME FOR ACTION
Stocks for Beginners

TSX Still Down 9%: Why New Investors Should Buy Now!

New investors should pounce on the opportunity to buy long-term holds like these blue-chip companies while they're still down by…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »