Most of us have a bad relationship with our cable company. Each month we pay our T.V. bills. Every year, they raise the price. And don’t get me started on the customer service!
Sure, some folks cut the cord and stream their content over the Internet. But guess what? The cable company owns that cord, too!
No matter what we try to do, cable companies will always get our money. That’s why stocks like Telus Corporation (TSX:T)(NYSE:TU) and Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) should continue to pay out some of the most dependable dividends around.
Smart investment? Definitely. But before you fork over your hard earned cash, there are also some key differences that need to be considered. Let’s see how these two dividend champions stack up against one another.
At first glance, Shaw is the obvious choice. Today, the stock yields 4%, which is nearly a half percentage point over Telus’s payout. However, that doesn’t give a full picture as to how much cash these firms return to shareholders.
In addition to its normal distribution, Telus uses its extra cash on hand to buy back stock. If you use a broader definition of yield to include both dividends and buybacks, Telus’s payout jumps to a tidy 5.8%. Winner: Telus
2. Payout growth
Case closed! No, sadly not. We have to dig a little deeper than yield to analyze the quality of a payout. Distribution growth is also important because we want to ensure that our income stream can rise faster than inflation over time.
Over the past decade, Telus has increased its distribution by a respectable 15% per year. That’s more than enough to keep up with rising prices. Shaw, however, has done even better. The company has hiked its payout by an absolutely outstanding 23% annually during the same period. Winner: Shaw
3. Earnings growth
We probably can’t expect those types of growth numbers in the future. Both companies started the period with tiny dividends. It’s easy to score extraordinary growth rates when you start with an unusually low base.
Future distribution hikes depend upon growing profits. According to analyst estimates, Shaw and Telus are expected to deliver 6% and 8% earnings growth over the next five years, respectively. Winner: Telus
Yield and growth are great and all, but will these payouts hold up when times get tough? As dividend investors, the worst case scenario is watching our income stream dry up.
That said, Telus is one of the oldest dividend payers in the country, sending out a cheque to investors every year since 1916. Shaw has a good track record of rewarding shareholders, too. However, the company only committed to a regular dividend in 2004. Winner: Telus
The payout ratio is another important metric to measure security. Shaw pays out only 57% of its profits to shareholders, giving the firm plenty of wiggle room if business sours. Telus’s payout ratio is a tad more elevated, but it’s still a conservative 65%. Winner: Shaw
6. Payout frequency
Dividends are great. But for those of us who rely on our portfolio to pay the bills, it can be tough to coordinate monthly expenses with quarterly payouts. Thankfully, some companies like Shaw have seen the value of monthly distributions. That makes it a little easier for those of us living on a budget. Winner: Shaw
Telecom stocks are hot. Income-hungry investors are turning to the industry for its steady dividends, pushing up share prices across the entire sector. Today, Shaw and Telus both trade at a rich 15 times forward earnings, which could leave shares exposed to a sell-off if results disappoint. Winner: Draw
And the results are in…
Shaw and Telus are both wonderful businesses that will continue to crank out dividends for decades to come. That’s why it can be tough to pick between the two. However, with a metaphorical gun to my head, I lean slightly toward Telus for its higher yield and longer track record.
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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 Robert Baillieul has no position in any stocks mentioned.