What to Make of This 5G Stock Today?

This 5G stock is a great one to consider, but does have some downsides as well. Investors should do their homework with this Canadian large cap name.

| More on:
analyze data

Image source: Getty Images

The telecommunications sector is one that exhibits a few key positive attributes for defensive investors. These stocks tend to be low-beta investments with above-average dividend yields. Income-oriented investors may therefore appreciate a stock like Rogers Communications (TSX:RCI.B)(NYSE:RCI) today.

In this article, I’m going to discuss the pros and cons of investing in a company like Rogers in this current environment.

Secular trends bullish

One of the key growth areas for Rogers coming out of this pandemic will be the secular shifts we’ve seen as a result of this coronavirus pandemic. Increasingly, Canadians are working from home. This trend is unlikely to change. Data package upgrades and incremental profit-making off of plan add-ons could provide a nice near-term boost to Rogers’ earnings potential. I expect we could see some earnings surprises on the horizon, something that would benefit existing shareholders greatly.

With the 5G rollout that has come, and the increased data usage related to streaming set to impact telco’s like Rogers, there’s a lot to like about this stock right now. These catalysts are key reasons to hold this stock for the long-term.

Dividend enticing, but perhaps not the best

Rogers’ dividend yield is lower than its peers due to its perceived level of relative safety. The fact is that yield and quality tend to act inversely: investors pay for what they get. This is bullish for defensive investors who believe this sector may see some pain over the long-term if rates are capped by the Canadian government. That said, income investors may be better suited reaching for yield at a low risk premium with the company’s two largest competitors if that is the investment goal.

Risks do exist with this stock right now

With capital inflows into growth sectors necessitating capital outflows from other defensive areas of the market, Rogers could be a net loser in this environment over the short-term. Investors may choose to get more aggressive if we do see economic conditions improve. Rogers is a stock that is still more than 10% off its pre-pandemic highs and about 20% below its all-time highs for a reason.

Bottom line

Rogers does have a meaningful dividend; however, in total return terms, this may be a stock that lags for a while. Capital appreciation may not materialize to the extent that some investors are hoping. With growth having such importance these days, capital flows into telco’s may be limited. Accordingly, those looking to build a position in this stock should do so over time. Thus, a dollar cost averaging strategy may be best in this environment.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »