There’s a lot of tension in the global markets right now. “World War 3” has been trending on social media, and no one really knows what to expect from our political leaders. The stock market has been moving sideways, and any news, either way, will move the market, making it volatile over the short term.
During such a situation, the best thing a smart investor can do is to take a look at companies with businesses that are not going to be affected due to market movements. One area of spending that customers are not going to give up on is for their internet and cable needs. Recession or no, everyone wants to surf the worldwide web and watch their favourite sitcom.
Cogeco Communications (TSX: CCA) is the eighth-largest cable operator in North America, operating in Canada under the Cogeco Connexion name in Québec and Ontario (788,000 internet service customers) and along the East Coast of the United States under the Atlantic Broadband brand (in 11 states from Maine to Florida with 446,000 internet service customers).
The corporation provides residential and business customers with internet, video, and telephony services through its two-way broadband fibre networks.
While cable numbers are on a downtrend, they are not facing extinction, contrary to popular opinion. However, Cogeco is working to increase its internet revenues and reach to increase sales. The company is working with the Canadian Radio-television and Telecommunications Commission to increase internet connectivity in rural Ontario, specifically in Renfrew County. Cogeco will not venture into new markets but will augment its presence in markets it is already present in.
This complements the company’s expansion strategy in the United States where there is a strong organic growth opportunity in largely non-metropolitan markets with fragmented competition. If Cogeco can pull this off successfully, investors can expect a significant bump in the company’s bottom line in the near future.
The verdict
Cogeco is a Dividend Aristocrat, having paid out quarterly dividends every year since 2008. While the dividend payout of 2.05% might not be the highest around, it is nothing to scoff at. Over the past five years, dividends paid per share have increased by 10.7% on a compounded annual basis, and the company’s market capitalization has approximately doubled over the last six years.
Around 30% of the company’s profits were paid out as dividends last year, which indicates there is enough room to increase payments going forward. Cogeco’s EPS has grown from $1.15 in fiscal 2015 to $1.77 in fiscal 2019. That’s an increase of over 10% every year.
The company has a robust business model, solid numbers, and loyal customers, making it a decent bet in a volatile environment. The stock gained over 70% in market value last year, easily outperforming broader markets. The telecom industry is anticipating the 5G rollout to boost top-line figures, and Cogeco is well poised to benefit from this transition.
Analysts tracking Cogeco have an average target price of $119. This is 6% higher than the company’s current trading price.
