Which of the Big 3 Telecoms Is a Good Buy Today?

Telecoms are more defensive than the market. Which of BCE Inc. (TSX:BCE)(NYSE:BCE), Telus Corporation (TSX:T)(NYSE:TU), and Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) should you buy today?

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In 2014, a CRTC report indicated that wireless revenues made up the largest component (49%) of total telecommunications revenues. From 2014 to 2019, mobile data traffic in Canada is expected to grow 700%, a compound annual growth rate of 46%.

The Big Three telecoms, BCE Inc. (TSX:BCE)(NYSE:BCE), Telus Corporation (TSX:T)(NYSE:TU), and Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) are bound benefit to benefit from this massive growth.

Telecom performances compared to the market

Using iShares S&P/TSX 60 Index Fund as a benchmark, it fell from a 52-week high of $22.8 to $20.1, a decline of 11.8%. It now yields 3%.

Comparatively, the Big Three telecoms have been more resilient to the decline. Additionally, they provide a higher income (at least 1% higher) than the index.

  • BCE only fell from a 52-week high of $60 to $55.40, a decline of 7.7%. It now yields 4.7%.
  • Telus only fell from a 52-week high of $45 to $41.8, a decline of 7.7%. It now yields 4%.
  • Rogers Communications’s price is only 1% below its 52-week high. It now yields 4.1%.

With Rogers Communications declining the least, does that mean it’s a buy over the others? Let’s take a look at their valuations and expected growth.

Which defensive telecom is the best deal today?

BCE is priced at a price-to-earnings ratio (P/E) of under 17. The total return is estimated by adding the current yield with the expected earnings growth. With earnings growth anticipated to be 5-6% in the near future, investors can expect a total return of 9.7-10.7% from BCE.

Telus is priced at a P/E of about 16.8. With earnings growth anticipated to be 7-8% in the near future, investors can expect a total return of 11-12% on an investment today.

Rogers Communications is the cheapest of the three because it has experienced slower earnings growth compared with the other two. Its P/E is around 16.2. With earnings growth anticipated to be 6-7% in the near future, investors can expect a total return of 10.1-11.1% on an investment today.

In conclusion

If investors are looking for the highest income from this stable industry, BCE is your top choice because it has the highest yield of 4.7%. However, the telecom has historically yielded over 5%. That would imply a price of $52.

Investing in great businesses at fair prices is one of the best things investors can do for their long-term portfolio. It’s typically a fair deal to buy Telus when it yields 4%. However, Telus occasionally yields 4.2% or higher.

If you want to buy at the 4.2% yield, wait for Telus to get to $40 per share. That said, Telus should be on schedule to increase its quarterly dividend to 44 cents in the next three months. That is a forecast from its recent dividend-growth history. In that case, buying it at $41.90 would imply a yield of 4.2% today.

Rogers Communications has been trading essentially between $42 and $46 since 2014. It seems to be breaking out of that range. If its earnings do increase at a rate of 6-7% in the near future compared with its recent growth of 3%, it would be a good time to buy shares today.

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 owns shares of TELUS (USA). The Motley Fool owns shares of ROGERS COMMUNICATIONS INC. CL B NV. Rogers Communications is a recommendation of Stock Advisor Canada.

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