The Motley Fool

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

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.

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Fool contributor Kay Ng has no position in any stocks mentioned.

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