Telus is investing in non-telecom businesses and while they have a lot of potential, they are unproven yet, says an analyst.Fred Lum/the Globe and Mail
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Canada’s Big Three telecommunications companies have plenty of appeal as investors look for safety in a challenging environment.
Rogers Communication Inc. RCI-B-T, BCE Inc. BCE-T and Telus Corp. T-T are all recession-resistant, though not recession-proof, with high demand for their utility-like services. Customers need cellphone plans, internet connections and access to streaming services in all seasons.
BCE and Telus pay high dividends, which are rising on a regular basis. And while all three compete with each other, high barriers to entry mean it’s tough for new players to get a foothold.
To these strengths, the companies can now add Canada’s ambitious plan to bring in 500,000 immigrants a year by 2025. It is a powerful energizer that will deliver new customers.
“What is the first thing that newcomers want when they arrive?” asks Daniel Sacke, portfolio manager and senior investment advisor with The Sacke Wealth Advisory Group at BMO Nesbitt Burns Inc. in Toronto. “Internet and a cell phone.”
Mr. Sacke holds Telus and BCE in client portfolios, favouring Telus for its entrepreneurial bent, higher growth rate than BCE and commitment to dividend increases. Telus announced a 7.2 per cent year-over-year dividend increase in November, its 23rd increase since it started a multi-year dividend growth program in 2011.
Mr. Sacke believes if the economy slips into recession, telecom companies have the added appeal of offering inexpensive forms of entertainment such as streaming movies, TV programs, and gaming.
“We look at these companies as a defensive investment, as staples really,” he says. “You can argue that when times get tough, people are even more dependent on their phones and internet connections.”
Matthew Dolgin, equity analyst with Morningstar Research Services LLC in Chicago, also believes these companies are solid and recession-resistant businesses.
Mr. Dolgin favours BCE over Telus because BCE is a purer telecom play. Telus is investing in non-telecom businesses and while they have a lot of potential, they’re still unproven, Mr. Dolgin says.
These businesses include Telus International Inc. TIXT-T, which was spun off in 2021. It helps companies including Fitbit and Uber Technologies Inc. moderate online content via things such as customer service chatbots. Telus Agriculture & Consumer Goods and Telus Health are both expected to go the same route.
“There’s a little bit of faith that [Telus} can use its [artificial intelligence] and telecom base to help propel these other businesses,” he says. “It’s invested a lot in them and need them to succeed for their valuations to be worthwhile.”
Mr. Dolgin also sees Canada’s immigration targets as an energizer. Telus added 150,000 new customers in its latest quarter. It was the best performance since the third quarter of 2010. BCE’s net mobile subscriber additions were also a quarterly record.
In his earnings conference call, Rogers chief executive officer Tony Staffieri named immigration as one of three areas of mobile strength. The others were people returning to the office post-pandemic and resuming travel. In his call, BCE CEO Mirko Bibic also pointed to immigration.
Other influences on performance include higher roaming revenue as people resume travel for business and pleasure. More customers are buying 5G-enabled phones, which tends to lead to higher average spending.
Mr. Bibic pointed to the payoff from capital investment upgrades that are enabling 5G networks. Only 35 per cent of subscribers have 5G devices, he said, “so there’s a lot of room for growth.”
Mr. Dolgin favours Rogers as the most undervalued stock of the three in part because of the various dramas over the past year that have made headlines. These include the boardroom fight for control of the company, the network outage in July and the ongoing takeover battle for Shaw Communications Inc. While these factors don’t affect operating performance, they have depressed Rogers’ share price and this offers an opportunity for investment, he says.
Mr. Sacke considers Bell and Telus as portfolio anchors paying high dividends while offering steady growth. Mr. Dolgin sees potential for a 10- to 15-per-cent increase in their share price in the coming year.
Mr. Sacke says in a high-interest rate environment, their dividends have a lot of appeal when compared to fixed-income options. The dividend tax credit means an Ontario resident in the highest tax bracket will pay 39 per cent on dividend income versus 53.5 per cent on interest earned from a fixed-income investment.
“They give you a nice mix of dividend income and growth and that’s what you want in this environment,” he says.
In the end, it comes down to a preference.
“Each of these companies are great,” Mr. Dolgin says. “And whenever the market presents an opportunity for any of them, they’re worthy buys.”
Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
