Your TFSA (Tax-Free Savings Account) can be transformed into quite the potent generator of passive income. When you take the effect of taxation off the table, a TFSA income fund really can be a game changer, especially for Canadian consumers who could use a supplement amid the continued affordability crisis sweeping the nation. With expectations of rates on the rise again, the average yield on our favourite dividend payers could rise again.
Once the Bank of Canada raises rates (should it choose to), dividend payers could feel a bit of pressure, especially the ones with more than their fair share of debt.
Either way, quality yield has become somewhat scarcer in recent years, and while higher rates could change that, I still think that there’s no sense in waiting for better opportunities to land when there are intriguing deals already, especially in less-loved parts of the Canadian market.
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Rogers Communications
In this piece, we’ll check in on one name that sports a nice 4.5% dividend yield and a price of admission that entails deep value. Enter shares of Canadian telecom firm Rogers Communications (TSX: RCI.B), which is perhaps best known for offering a far more modest dividend yield relative to its two rivals.
After a vicious valuation reset swept through the telecom scene, Rogers Communications now finds itself as the number-two Canadian telecom firm, thanks in part to taking less damage amid the multi-year telecom stock meltdown.
Though the hit to shares of RCI.B has been more modest, it’s still been stressful for shareholders to deal with, especially for those who bought during the pandemic-era days. Today, shares are down around 40% from their highs.
Despite the relative resilience, though, Rogers still stands out as a steadier ship in the telecom waters and one that might prove the most undervalued when you weigh the price you’ll pay for the kind of fundamentals you’ll receive.
A sportier kind of dividend play
Whether we’re talking about the unlocking of synergies via the Shaw Communications integration, momentum in its incredibly strong mobile network, or staying diversified with the high-quality sports portfolio (it’s about the best of the best when it comes to media assets), Rogers seems to have a more solid mix than its rivals, many of which may have raised the bar on their risk profiles by venturing south of the border or spending too much on non-telecom opportunities.
Perhaps the crown jewel of Rogers is Maple Leaf Sports & Entertainment (MLSE), the firm behind the Toronto Maple Leafs, Raptors, Blue Jays, and Argonauts, and the arenas behind them, as well as broadcasting via Sportsnet. I think buying the remaining stake in MLSE (it’s 100% aboard now!) is a wise move that could pay considerable dividends as sports continues to act as a relatively steady pillar in the wild world of television.
Cheap and greater cash flow predictability?
Still, Toronto-based sports fans shouldn’t be buyers of the stock just for the sporty part of the business. Rather, it’s the dirt-cheap price of admission to be had. The stock goes for 3.9 times trailing price-to-earnings (P/E), which is getting ridiculous. On a forward P/E basis, the multiple swells to 9.6 times.
Still, that’s not a high price to pay, especially for a firm that can effectively deleverage, rather than pursuing overly ambitious sovereign AI data centre projects. In my view, using AI tools to cut costs rather than ramp up spending is wise at a time like this, when there’s already a good amount of debt sitting on the balance sheet and borrowing costs might just be headed higher.
