Forgettable is an understatement if you describe the performance of TSX’s communications services sector in 2024. The year-long slump of the big guns, BCE (TSX:BCE), TELUS, and Rogers Communications, led to the sector’s 20% loss.
Interestingly, Cogeco Communications (TSX:CCA) went against the downtrend, ending the year with a +18.4% gain. Quebecor (TSX:QBR.B), another smaller player, came through with a +3% return. Uncertainty engulfs the industry at the start of the new year. However, new avenues to restore investor confidence could be on the horizon, including plans for the telcos to deleverage and pursue expansion.
Pick #1
Cogeco Communications is the top pick for Canadian investors seeking exposure to the communications services sector in 2025. The $2.99 billion internet, video, and phone services provider displayed resiliency despite massive industry headwinds. Shareholders earned in two ways last year: price appreciation and dividend income.
Its president and chief executive officer (CEO), Frederic Perron, said fiscal 2024 was a year of tremendous progress because Cogeco met or exceeded all financial guidelines. In the fourth quarter (Q4) fiscal 2024 (three months ending August 13, 2024), profit declined 6.5% to $85.5 million versus Q4 fiscal 2023, while free cash flow (FCF) climbed 66.6% year over year to $148.2 million.
Cogeco Communications’ three-year transformation program is ongoing. Besides focusing on sustainable growth, it aims for stable revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) in fiscal 2025. Expanding its network footprint and enhancing service offerings in Canada and the U.S. are growth catalysts. If you invest today ($71.10 per share), you can partake in the hefty 5.19% dividend.
Pick #2
Quebecor carries a buy rating from market analysts. Their 12-month average price target is $38.08, a potential 18% upside from the current share price of $32.40. This mid-cap telco stock has been paying dividends since 2015. The dividend yield today is 4.01%.
The $7.58 billion diversified media and telecommunications company reported decent results in the first three quarters of 2024. In the nine months ending September 30, 2024, revenue and net income rose 5% and 14% year-over-year to $4.1 billion and $564.1 million.
In Q3 2024, the combined mobile subscriber base of Quebecor’s Videotron, Freedom Mobile, and Fizz brands passed the four-million mark. Pierre Karl Péladeau, president and CEO, said Quebecor is well-positioned to solidify its position as Canada’s fourth major telecommunications provider.
Pick No. 3
BCE is hard to ignore, especially by income-focused investors. At $34.70 per share, the trailing one-year price return is -31.08%. However, the dividend offer is an off-the-charts 11.64%. You’d be investing in a $31.3 billion cash cow. The average net income in the last four years is nearly $2.5 billion.
While BCE is in a rough patch and facing challenges, including intense competition, its size and scale remain a significant advantage. It has $4.4 billion in available liquidity. The generous dividend should compensate for the stock’s weakness while waiting for the turnaround.
Hands-down choice
The communications services sector, where telco stocks belong, was the only losing sector on the TSX in 2024. But if I were to invest in one, Cogeco Communications is my hands-down choice.
