Canadians keep paying for mobile service and internet connections, even when they cut back elsewhere. That recurring spending attracts investors who want regular dividends. Owning a service everyone needs should feel reassuring, although telecom share prices have been doing a poor job of providing the reassurance.
Rogers Communications (TSX: RCI.B) fell to $44.65 on October 19. With an annualized dividend of $2 a share, that puts its yield near 4.5%. The income is attractive enough to investigate, especially for investors who don’t need the share price to recover a week later.
A yield rises when a stock falls, even if the business hasn’t improved. That simple relationship is responsible for plenty of disappointing purchases. Investors need to understand why the market wants a lower price before treating a bigger percentage as a gift. So let’s look further.
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Cash after construction
Telecoms spend heavily on networks. Reported earnings alone don’t show how much money remains after those investments, interest costs, and other cash requirements. A useful income holding needs enough remaining cash to support shareholders without continually leaning on new debt.
Rogers owns wireless and cable businesses alongside media and sports assets. The networks bring recurring customer payments, while competition limits the company’s freedom to raise prices. Familiar services don’t guarantee an easy time for shareholders.
In the second quarter, Rogers generated $982 million in free cash flow under its own definition, up from $925 million a year earlier. This measure deducts capital spending and several other cash costs from adjusted operating earnings. It provides a better starting point for assessing dividend capacity than customer counts alone.
The other number I’d keep nearby is leverage. Rogers reported a debt leverage ratio of 3.8 times at June 30, down from 4 at year-end. The improvement is encouraging, though the remaining obligation is substantial. The company’s calculation also makes adjustments that investors should understand before comparing it with another business.
Real income, but not guaranteed
At $44.65, a $10,000 budget would buy 223 whole shares for $9,956.95 before fees. If the $0.50 quarterly dividend is maintained, those shares would produce $446 a year. That is $111.50 each quarter, with $43.05 left uninvested.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| RCI.B | $44.65 | 223 | $2.00 | $446 | Quarterly | $9,956.95 |
The 4.5% yield gives investors a concrete valuation reference. It doesn’t establish that the stock is cheap on every other measure. A business with heavy borrowing can look inexpensive on equity measures while still needing years of cash generation to improve its financial position.
For dividend investors, the relationship between free cash flow, dividends, and debt repayment will determine how much of that yield deserves confidence. I’d prefer steady improvement in those figures to a brief rally driven by a more cheerful market mood.
Considerations
Higher refinancing costs are one clear risk. Aggressive mobile promotions are another, since adding customers at weaker economics can leave revenue growth looking better than the underlying returns. Sports and media assets also bring spending commitments that don’t vanish when the broader economy slows.
I see Rogers as a potential income-and-recovery holding for investors comfortable with those complications. It wouldn’t be my stand-in for cash needed soon. An appropriate Canadian stock portfolio should leave room for less leveraged businesses alongside it.
A useful warning sign would be dividend payments continuing while leverage stopped improving and network investment became harder to fund. The income cheque might still look reassuring for a while, but the financial flexibility behind it would be shrinking. Rogers needs enough room to keep both customers and lenders comfortable. That gives debt repayment a direct connection to the value of the shares.
Bottom line
The next earnings release needs to show cash generation continuing to translate into a stronger balance sheet. If Rogers can reduce leverage without starving its networks or its shareholders, today’s yield could become easier to own. Until then, the dividend deserves attention and the debt earns equal billing.
