Telecom stocks may not be the most resilient in the face of a nationwide recession. However, they are great bets for those seeking big passive income and steady capital appreciation over the longer term. Indeed, the broader basket of telecom stocks has really cooled off in recent quarters, thanks in part to the anticipation of an economic slowdown. Thanks to the slump, their dividend yields have swollen slightly, providing investors with a chance to “lock in” a sizeable payout at a pretty reasonable price.
Undoubtedly, higher interest rates could eat away at dividend-growth potential. However, with the Bank of Canada positioned to hit the pause button on its rate hikes, there’s a good chance that Canadian telecom firms may have too much fear baked in at these levels.
Even with the pothole-filled road ahead, I still think the telecom stocks are worth buying while their dividend yields are on the high side. In this piece, we’ll have a look at my favourite telecom stock to consider putting on your radar right here, right now.
Without further ado, consider shares of Quebecor (TSX:QBR.B), a Quebec-based telecom that likely isn’t the first thing to come to mind when you hear of Canada’s top telecom firms.
Quebecor: A telecom underdog poised to turn the Big Three into the Big Four
Quebecor is a mid-cap stock with a market cap of just under $7.5 billion at writing. Unless you’re from Quebec, you probably haven’t heard of the company or its subsidiary Vidéotron. The well-run company has a nice positioning in the Quebec market, but it has its own ambitions to come more of a national carrier alongside the likes of the Big Three.
Now, smaller telecoms have tried to become player number four in the Canadian telecom scene, but have ultimately failed to bring down the moat of the Big Three players. Simply put, it’s no easy task to stand up to the Big Three incumbents in the not-so-competitive telecom space.
As you may know, Canadians pay some really high telecom rates, at least relative to other firms. The Big Three can justify the prices. However, one thing remains clear: the federal government wants to do its best to foster greater competition and bring better deals for Canadian wireless customers.
Can Quebecor thrive as it moves outside its comfort zone?
Quebecor’s expertise is within Quebec, but I’d argue it can replicate its success in other provinces if it goes slow and steady. A bit of help from the government would surely help as well!
In any case, Quebecor doesn’t need to expand beyond Quebec to do well for new investors. The Quebec market is more than enough to fuel solid dividend growth for years to come. Today, shares yield 3.75%. That’s less than some of the national heavyweights, some of which yield north of 5%.
However, you’re getting a lot of long-term growth runway with Quebecor. I view it as the growthiest telecom in Canada and would prefer it while it’s trading at a huge discount to some of its peers. At 12.53 times trailing price to earnings, Quebecor stock is a magnificent value play that’s also capable of growth.