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Report on Business Rogers jumps back into dividend game, but ‘won’t be stuck in a cycle’ of annual increases

Rogers Communications Inc. increased its dividend for the first time in four years, but the company is telling investors not to expect regular hikes to the payout.

Chief executive officer Joe Natale said Thursday that the cable and wireless provider’s priority is investing in its business to sustain growth in cash flow.

“What we don’t want to do is be stuck in a cycle of annual dividend-increase commitments,” he told analysts on a conference call, adding that Rogers will have more of a “bias” toward share buybacks when it has extra cash to return to shareholders.

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Toronto-based Rogers reported fourth-quarter results Thursday, revealing a strong end to the year as it added more wireless and internet customers, beat analyst expectations for revenue and profit and provided a rosy financial forecast for 2019. It boosted its annual dividend 4.2 per cent to $2 per share.

“As a team, we hit our stride,” said Mr. Natale, who has been CEO for just under two years.

Rogers said revenue for the quarter was $3.94-billion, up 6 per cent from the same period a year earlier. Profit increased by 1 per cent to $502-million, or 97 cents a share. On an adjusted basis, Rogers said it earned $1.13 a share, beating analyst estimates of $1.08.

Driven largely by revenue growth at the company’s wireless business, adjusted EBITDA grew by 6 per cent to $1.52-billion, just ahead of analyst forecasts (EBITDA refers to earnings before interest, taxes, depreciation and amortization).

Rogers added 112,000 new contract wireless customers in the fourth quarter and said the rate of customer turnover decreased to 1.23 per cent from 1.48 per cent a year earlier. Mr. Natale has focused on improving customer service and network performance since arriving at the company.

Average billing per user (ABPU) increased by 2.6 per cent to $65.12, slower than the 5-per-cent growth a year ago. Rogers said the prevalence of larger monthly data allowances – which have been an industry trend due in part to competition from regional players Freedom Mobile and Videotron – contributed to slowing growth.

On the cable side of its business, Rogers lost 16,000 television subscribers but added 25,000 internet customers. Last year the company launched a new television platform, Ignite TV, but Mr. Natale acknowledged that his focus is on broadband customers, with the hope that the television product can help woo internet customers interested in multiple services. He said cord-cutting – customers dropping their cable subscriptions – has been in the range of about 1 to 2 per cent.

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Rogers said it expects revenue growth of between 3 and 5 per cent for 2019 and forecast adjusted EBITDA growth of between 7 and 9 per cent. It said it expects to spend between $2.85-billion and $3.05-billion on capital expenses this year.

After a series of regular increases, Rogers paused dividend growth in January, 2016, a move that shocked investors at the time. The company said it was necessary to contain its debt leverage after spending heavily on wireless spectrum (the airwaves used to build cellular networks), the national broadcast rights for the NHL and acquiring startup carrier Mobilicity.

Now, Rogers says its debt-leverage ratio (the company’s adjusted net debt divided by its adjusted EBITDA) is 2.5, down from 2.7 at the end of 2017. When Rogers paused the dividend three years ago, debt leverage stood at 3.1.

Some analysts had expected Rogers to increase its dividend by more than it did. Barclays Capital’s Phillip Huang noted, “the 4.2-per cent increase seems quite conservative,” and Canaccord Genuity’s Aravinda Galappatthige said, “We believe that broad expectations were for a 5- to 10-per cent raise given the … low dividend yield.”

Rogers’ dividend yield was 2.6 per cent before the increase. In contrast, dividend yields at its rivals BCE Inc. and Telus Corp., both of which have longstanding dividend growth policies, are 5.4 and 4.7 per cent, respectively.

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