The telecommunications sector is one that’s looking much more attractive than it has in recent years. Not only are telecom stocks among the most consistent in their dividend stock peer group, but they’re also companies that operate in a relative oligopoly in Canada.
And given the necessity our smartphones play in our daily lives (and who can live without internet at home), the companies providing these back-end services have among the most robust cash flow streams out there. Indeed, I view the revenue and earnings of major Canadian telecom players in a similar way as I do to utilities. The only difference is I think many consumers would rather have their heat shut off than their phones.
In this new age world we live in, plenty of other tech stocks and growth names have outperformed the two telecom stocks I’m going to highlight below. But if we do see recessionary headwinds continue to unfold, these telecom giants could actually outperform in the quarters and years to come.
Telus
One of Canada’s largest telecom companies, Telus (TSX:T) remains a top pick of mine in this sector, and for good reason.
The company’s revenue growth continues to come in at a reasonable level, given the company’s size and cash flow profile. Growing nearly 4% a year, this is a slow and steady sort of name investors can rely on for a very meaningful 7.4% dividend yield.
Of course, with a dividend yield that high, investors are clearly pricing in a decent likelihood that Telus will have a harder time raising its dividend over time, given the capital-intensive nature of this business. That’s fair, and it’s a factor worth considering.
However, the company’s 5G rollout remains a key growth factor, as does its revenue growth potential in other verticals, mainly Telus’s burgeoning healthcare business. Over the long term, this is a top dividend stock, and I think it is worth buying on dips.
Rogers Communications
Rogers Communications (TSX:RCI.B) is another telecom stock I think is worth looking at for the company’s rather robust dividend yield, which is approaching 5%. Indeed, for investors seeking a telecom stock with robust dividend growth potential and a beaten-down valuation, this is a stock worth considering. At just 12 times earnings, it’s hard to argue that Rogers isn’t cheap here.
The telecom giant is now down nearly 50% from its most recent peak and could be due for continued selling pressure if these market headwinds pick up. That said, I view Rogers stock as one of those bond proxies that could really benefit from a declining interest rate environment.
Rogers’s relatively attractive valuation multiple and lower yield imply that investors believe this is a more stable pick. I tend to think that’s the case, and a balanced portfolio holding both these telecom stocks should perform well over the long term. That goes for dividend investors and those seeking meaningful total returns over the long term as well.
