What are we looking for?
Canadian telecom companies that are best positioned in 2011 for further dividend increases and more share buybacks.
More about today's screen
This screen of the six principal telecom stocks on the Toronto Stock Exchange comes to us courtesy of Maher Yaghi, telecom analyst at Desjardins Securities in Montreal.
Mr. Yaghi has calculated the amount of free cash flow he expects each company to generate in 2011 on a per-share basis. He has also provided dividend forecasts for each stock, the free cash flow payout ratio, the yield for each stock based on current prices, and the amount of free cash flow that remains after dividend payments and which could potentially be used for share buybacks by the company.
Mr. Yaghi does not assume that the companies will use their share buyback yield solely for share repurchases, but the data give a sense of which telecoms are in the best position to do so.
What did we find?
Manitoba Telecom Services Inc. offers one of the sweetest payments, yielding 6 per cent. But with a 99 per cent dividend payout ratio, MTS has a red flag by its name. Given its high payout ratio, the board of directors finds its hands tied in terms of making further increases, unless it wants to pay out more than the company is currently able to generate.
Likewise, units of Bell Aliant Regional Communications Income Fund offer a hefty dividend but the opportunity for increases is limited, with the trust already paying out close to 81 per cent of its cash flow.
Clearly, Rogers Communications has the most room to raise dividends, paying out only 38 cents of every $1 of estimated 2011 free cash flow. Rogers' thriftiness has also left the company with the greatest amount of free cash flow per share to direct to share buybacks.
Based on the potential buyback yield, Rogers has the most potential for buying back shares in 2011, followed by Telus and Shaw Communications.
Both BCE and Telus recently boosted their dividends and Mr. Yaghi says he doesn't expect either to announce further increases any time soon. But he thinks that Rogers will raise its payout by 8 per cent for 2011.