Shares of Quebec-based telecom firm Quebecor (TSX: QBR.B) look to be a far better bet for defensive dividend investors looking for a way to not only score a nice, growing dividend payout, but a good amount of growth and capital gains as well. Undoubtedly, you don’t have to look far to find a Canadian telecom stock that’s been facing unprecedented challenges in this industry environment.
While not all “Big Three” telecom titans are destined to see their dividends be chopped down by double-digit percentage points, I still think I’d rather be in a business that’s firing on all cylinders and performing well, with room to run further than a name that continues to battle headwinds. Of course, there’s a discount for picking the laggard, but sometimes, the discount might not be worth the stress or potential for things to worsen. Just because the price of admission is low doesn’t mean that you can’t lose money.
And in some cases, there’s still big money to be lost should things not improve for the better, and the magnitude of capital losses is far greater than a swollen annual dividend yield. As you may know, chasing yield can be a risky proposition, and it’s not one that I suggest playing if you’re winding down for retirement. Either way, not all telecoms are tough holds right here. Quebecor is a share-taker that I think is just getting started, as its Freedom Mobile business looks to pick up more speed in the next five years.
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Quebecor is a small player with big growth potential
In any case, I view Quebecor as an intriguing dividend pick for defensive investors, especially since it seems to have more of a growth edge versus its rivals. Undoubtedly, it’s a much smaller player in the space as it expands outside of the province of Quebec. But it’s not all too easy to take on the bigger players out there, especially in an industry that’s so fiercely competitive.
Either way, I’m a big fan of Quebecor’s managers and their strategy, not only to offer lower prices in its expansion at the national level, but to retain customers. Undoubtedly, it’s pricier to acquire new customers, so paying attention to customer retention, I think, is key to reducing churn, especially as rates across the board begin to come in on wireless services.
The thing I like most about Freedom Mobile has to be that its network is poised to expand (it’s investing in 5G+ to catch up with its rivals). As it scales up and looks to drive average revenue per user (ARPU) metrics by offering additional services as well (think internet services), I like the growth narrative and think it’s actually quite competitive, even in an industry dominated by giants. At the time of this writing, shares trade at a very modest 13.55 times trailing price to earnings (P/E).
Way too cheap despite recent gains
On a forward-looking basis, shares go for less than 11.5 times forward P/E, which I find to be quite low, especially given the potential to grab more market share in the Canadian wireless market. Add the 3.13% yield into the equation, and I’d not be afraid to be a net buyer, even as shares look to keep breaking out. They’re at fresh new highs today at north of $45 per share. But they deserve to be rallying higher. So, if you’re a dividend investor who seeks stability (low 0.52 beta), momentum (shares up over 43% so far this year), and yield, the name is a timely option this November. It’s my favourite telecom stock and for good reason.
