Mobile communications have become so entwined in our lives that the companies that provide them have become the new utilities, and offer a better bargain for investors, says Barry Schwartz, portfolio manager with Baskin Financial Services in Toronto.
Smartphone ownership in Canada reached 40 per cent of the population in September and should hit 75 per cent in two years, according to the research firm comScore. That suggests far greater growth potential for the wireless carriers than for pipelines and energy utilities, he writes on the firm’s blog.
“Why should Enbridge , Fortis and TransCanada trade at close to 20 times earnings vs. the telcos which are at 12-14 times, when the telcos have lower capital expenditure requirements, better balance sheets and higher dividend growth potential? With many of the utilities already paying out close to 70 per cent of earnings, there is little [room] for dividend growth. Rogers on the other hand has a dividend payout of less than 50 per cent.”
It’s a compelling argument to own some telecommunications firms. Baskin favours Rogers Communications over BCE and Telus at the moment. But Mr. Schwartz discloses that he or clients hold shares of Fortis and TransCanada too, so diversification also remains a smart strategy.