Investing in quality, undervalued stocks offering a tasty dividend is a solid strategy for generating steady gains. In this article, I have identified one such undervalued TSX dividend stock you can consider buying right now.
Cogeco Communications (TSX: CCA) is a telecommunications company with a market cap of $2.87 billion. It operates in Canada and the United States and provides internet, video, wireless, and wireline phone services to residential and small business customers via two-way broadband fibre networks.
Services include managed Wi-Fi, video packages, voice services, and advanced connectivity solutions like dedicated fibre and hosted PBX (private branch exchange) through hybrid fibre-coaxial and fibre-to-the-home technologies.
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Is the TSX tech stock a good buy?
In the last 10 years, Cogeco stock has underperformed the broader markets, returning less than 50% to shareholders, even if we adjust for dividend reinvestments. Down 45% from all-time highs, the TSX stock trades at an attractive valuation today, offering a tasty dividend yield of 5%.
Cogeco delivered mixed fiscal second-quarter (Q2) results, with consolidated revenue declining 2.7% while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) remained stable in constant currency. However, Cogeco maintained its fiscal 2025 guidance despite competitive pressures in Canadian and U.S. markets.
In Canada, Cogeco Connexion added 8,300 Internet subscribers under both the Cogeco and Oxio brands. It demonstrated resilience despite revenue declining 0.9% due to video cord-cutting and competitive pricing. The company’s fibre-to-the-home expansion added nearly 7,000 new homes, primarily in Canada, with the Ontario subsidized network program continuing through fiscal 2026.
The U.S. Breezeline segment faced headwinds from the fixed wireless competition and fibre overbuilds, with revenue falling 4.5% in constant currency. However, management successfully maintained stable EBITDA through aggressive cost-reduction initiatives and operational efficiencies, while customer satisfaction metrics in Ohio showed year-over-year improvement.
A key strategic development is Cogeco’s upcoming wireless launch in Canada, with preregistration demand from existing wireline customers exceeding expectations. Management views wireless as primarily a churn reduction tool rather than a significant revenue driver, similar to successful U.S. cable MVNO strategies.
Free cash flow increased 12.8% in constant currency, driven by lower capital expenditures and financial expenses. Cogeco also maintained its quarterly dividend of $0.922 per share and targets a net debt-to-EBITDA ratio in the low three times range.
Looking ahead, management projects material free cash flow growth of approximately $150 million over the next two years, driven by the natural completion of rural network buildouts and reduced modernization spending as objectives are achieved.
Is the TSX dividend stock undervalued?
Analysts tracking Cogeco stock expect adjusted earnings to expand from $9.35 per share in fiscal 2024 (ended in August) to $11.25 per share in fiscal 2029. Comparatively, free cash flow is forecast to increase from $476 million to $583 million in this period.
Priced at 7.3 times trailing earnings and six times trailing FCF, the TSX tech stock is relatively cheap. Moreover, its dividend expense in 2025 is expected to be about $155 million, indicating a payout ratio of below 30%.
A low payout ratio allows Cogeco to strengthen its balance sheet, target accretive acquisitions, and raise its dividends further. Analysts expect the company to increase annual dividends from $3.42 per share in 2024 to $5 per share in 2029.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Cogeco Communications | $68.18 | 32 | $0.922 | $29.5 | Quarterly |
Today, an investment of $2,200 in the TSX stock will help you purchase 32 company shares and earn close to $120 in annual dividends. Given dividend growth estimates, these payouts could increase to $160 per share in fiscal 2029, raising your effective yield to over 7.2%.
If Cogeco trades at a multiple of 9 times forward earnings, it should be priced around $101 in early 2029, indicating an upside potential of over 45% from current levels. If we adjust for dividends, cumulative returns could be closer to 75%.
