When considering Canada’s big telecoms, there are a lot of similarities. For one thing, the Big Three and their subsidiaries collectively account for more 90% of the Canadian telecom market. Then there’s the nearly insatiable demand for wireless data that is providing an incredible growth opportunity for all of the carriers, even prompting a fourth major player to enter the market as a disruptive force to be reckoned with.
In particular, BCE (TSX:BCE)(NYSE:BCE) and Rogers Communications (TSX:RCI.B)(NYSE:RCI) — the two largest carriers in the country — are comparable in nearly every way. Which is the better investment for your portfolio?
Let’s take a look at both and try to answer that question.
The case for BCE
BCE is, in many ways, the backbone of the industry. The company has been rewarding shareholders for well over a century through its attractive quarterly dividend, which has not only been hiked on an annual or better basis for over a decade but also currently provides an appetizing 5.43% yield.
Critics of BCE often point to that high payout on offer as risky, noting that it leaves little room for growth. This is, fortunately, not an issue, as BCE’s payout typically comes in below 75% of free cash flow.
Looking beyond the dividend, investors will find a treasure trove of segments within the company that can only be described as an empire. While the subscription services offered provide the majority of earnings for BCE, the company is divested into a number of areas, such as its media portfolio of radio and TV stations and its stake in professional sports teams.
Last month, BCE provided an update or the fourth quarter of 2018; it, among other things, noted a 3% increase in consolidated revenue and 2.8% higher adjusted EBITDA. Revenue from both the wireline and wireless segments saw equally impressive revenue gains of 2.4% and 4.6%, respectively. Wireline growth witnessed its best result in over a decade, and the wireless segment had 143,00 net subscriber additions.
Overall, company earnings attributed to shareholders came in at $606 million, or $0.68 per share, reflecting strong growth for the company looking towards fiscal 2019.
The case for Rogers
Rogers is an interesting investment option that is beginning to differ from its peers, particularly when it comes to growth. Over the past few years, Rogers has opted to focus on growth and pay down its debt rather than provide upticks to its dividend.
While this may have proven unpopular with some income-seeking investors, the logic is sound. In short, churn is down, revenue and subscribers are up, and in the most recent quarter, Rogers announced its first dividend hike in several years, bringing the yield to a respectable 2.74%.
Rogers is predominately known for its massive wireless network, which is the envy of telecoms both in Canada and around the world. In the most recent quarter, Rogers continued to impress. Revenue from the wireless segment realized an 8% gain in the quarter, fueled by strong subscriber growth of 112,000 net new subscribers. Rogers also announced an improved churn rate of just 1.23% for the quarter. These were both instrumental points that helped the segment realize its best quarterly update in nine years.
Which is the better investment?
Both Rogers and BCE are compelling investment options for nearly any portfolio, and the decision to invest in one over the other may come down to individual preference or objective. Those investors that are looking for an income-producing investment right now can really do no harm in selecting BCE and its appetizing yield, which remains above 5% and nearly twice that of Rogers.
But investors looking for long-term growth as a primary objective and income as a secondary goal may be better suited with selecting Rogers, which continues to make inroads towards lowering its debt and improving its service, ultimately leading to more growth.
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Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned.