Canadian telecom Shaw Communications (NYSE: SJR) has extended its dividend reinvestment plan (DRIP) to shareholders living in the United States. U.S. shareholders can now enroll their Class A and Class B non-voting class shares in the DRIP, which had, since 2008, only been available to Canadian residents.
Under the plan, Shaw’s registrar, CST Trust, will purchase Class B shares for investors enrolled in the DRIP. The shares will be newly issued from Treasury at a 2% discount to the market price. That discount, along with the lack of brokerage fees for DRIPs, makes Shaw’s plan an attractive one for long-term investors.
But is Shaw a solid investment?
Shaw has rallied nearly 20% this year, thanks to accelerating sales growth and a low-interest-rate environment boosting demand for high yielding stocks. Shaw currently pays a forward yield of 4.4%, but the actual yield for American investors will depend on how exchange rates shift between the U.S. dollar and the Canadian dollar. Unlike many other telecoms, Shaw pays out a monthly dividend.
Shaw hasn’t consistently raised that payout every year. Its earnings-based payout ratio of 129% looks high compared to market leader Rogers Communications’ payout ratio of 85%, but Shaw’s dividend payments only used up 85% of its free cash flow over the past 12 months — indicating that it can still support its future payments.
Like many other telecoms, Shaw has struggled with declining landline subscriptions. However, it recently diversified into wireless services with its acquisition of Wind Mobile (now known as Freedom Mobile), sold its media business, and is raising prices on existing customers to offset its loss of core customers. Those moves helped it post double-digit sales growth over the past two quarters, and analysts expect its sales and earnings to both grow 3% next year.
The key takeaway
Shaw isn’t one of Canada’s “Big Three” telecoms (Rogers, Bell Canada, and Telus Communications), but its purchase of Wind Mobile puts it in fourth place. Its stock has also outperformed Rogers and Telus, which both trade on the NYSE, over the past year.
Shaw’s new DRIP makes the stock more attractive for U.S. income investors, but it doesn’t render it immune to headwinds like the saturation of the wireless market, rising interest rates, and the strong dollar. However, the stock remains fairly cheap at 11 times earnings, which is significantly lower than its industry average of 18.
10 stocks we like better than Shaw Communications
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Shaw Communications wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of Nov. 7, 2016
Leo Sun has no position in any stocks mentioned.
{loadposition user99}