3 Canadian Telecom Companies to Know

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Having previously posted a write up of BCE (NYSE: BCE), Canada’s largest telecom firm, illustrating its qualities as both an income and growth holding, it became of interest to consider its fellow providers within the nation. Plus, more recently I blogged about several European telecoms, including several that have sold off substantially. The difference with the U.S.’ closest neighbor is that the economy is expanding, albeit slowly. This is an important factor that impacts to what extent access lines are being lost or gained, as the industry continues its transition from landline to mobile and Internet. Share prices will fluctuate on how well they can offset the higher-margined legacy businesses with revenues from new offerings, and the dividend yields.

Another look at BCE with the benefit of its 2013 guidance confirms the belief that share profits will continue to rise. Increased revenues and margin improvements ought to support this momentum. And this outlook disregards the likely positive effect on results of the pending acquisition of Astral, expected to occur during the second quarter.

Astral’s $3.38 billion purchase price includes eight TV services, as well as radio, out-of-home advertising and digital properties. BCE has purchased TV assets in the past, particularly through its buyout of CTV Inc.

The company already reports solidly climbing wireless operating income behind an increasing postpaid subscriber base and pricing power. It thanks its 4G LTE network rollout and introduction into new markets for the strength in that segment.

BCE’s aforementioned 2013 forecast is founded on 2% growth in GDP. It also pays out 65% to 75% of income as dividends. The shares have gained ground along with the S&P 500 this year and hold appeal primarily for their yield.

And sports fans might know that BCE owns a minority stake in the Montreal Canadiens and the club’s Bell Centre arena. This brings me to the second company, Rogers Communications (NYSE: RCI), primarily a provider of wireless services, that also operates Cable, Business Solutions, and Media units. The Media unit is partly comprised of The Toronto Blue Jays and that team’s Rogers Centre.

Rogers’ domestic wireless market share equaled about 34%, with its closest competitor at about 28%. Smartphone activations are assisting profit growth in the segment through subscription increases and pricing gains. Wireless data services revenue was up sharply, 17% overall, in 2012.

Its Cable and Internet businesses are gaining headway, as well, as subscriber counts rise and margins improve. Rogers is leveraging its TV subscriber base, with 84% of those also purchasing Internet services. Although the slow Canadian ad climate has limited Media segment results, Rogers is offsetting the weakness with its sports properties and, in fact, purchased a new network, Score, in August 2012.

On that note, Rogers’ balance sheet is highly liquid and may well support further expansion measures including the further build out of wireless networks. RCI shares, up 24% over the past year, have near-term appeal. Management showed its belief in Rogers’ prospects recently with a 10% dividend hike, and the shares yield 3.6%.

Finally, TELUS (NYSE: TU) is a Vancouver-based telco that is also poised for growth in its Wireless profits this year. Here, too, smartphone subscriptions and related data usage ought to bolster the bottom line.

Moreover, TU’s Wireline earnings could well reverse its profit decline of last year, reflecting a positive trend across the telecom and media industries. Specifically, Internet and data revenue growth trending upward enough to drive a profit gain despite slowly eroding landline customer counts. For Telus, this turnaround is also a product of a growing TV subscriber base.

I view Telus as a telecom in a growth phase. The 3.7% yield is another plus, with management recently having upped its payout ratio. Momentum-based investors should take a look.

Summing it Up

A Canadian telecom could provide potential price appreciation, yield and diversification to a portfolio. The sector is in the midst of an upturn, as consumers and businesses increase their use of wireless and Internet services, while the traditional access line deterioration rate has in fact declined. This means there could be further profit upside. Plus, each is investing in television services that have the potential to boost results. In all, the stocks are positioned for near-term price upside and, as telecoms, are relatively safe investments.

dctotal has no position in any stocks mentioned. The Motley Fool recommends Rogers Communications (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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