Many Canadian investors are heavily invested in telecoms, which are attractive for several reasons. After all, these companies play a major part in our everyday lives, providing the important infrastructure to keep in touch with loved ones.
Combine that with plenty of predictable cash flow and some of the best dividends you'll find, and it's pretty clear why many Canadians are big fans of investing in our largest telecom companies, which happen to be some of the best dividend stocks on the planet.
What are the best Canadian telecom stocks to buy today?
Cogeco Communications (TSE:CGO)
Cogeco Communications (TSE:CGO) is a Montreal-based telecom that provides home internet, telephone, and cable services to customers in Ontario, Quebec, and 13 different U.S. states through its wholly-owned Breezeline subsidiary.
The company's Canadian operations are solid. It spent years acquiring local providers in communities across Ontario and Quebec, growing to service more than 600 communities from Windsor to Gaspe.
This allows it to hold its own against larger competitors like Bell Canada easily. It also owns spectrum in many of these markets, keeping its options open for potential expansion into wireless.
The U.S. operations aren't quite as strong, as evidenced by weaker results from that region. The main issue is out of Ohio, where operations in Cleveland and Columbus are struggling amid an all-out price war by competitors looking to win back market share. U.S. results are fine once we strip out this underperforming part of the division.
A big reason why Cogeco trades at a discount to peers is its confusing corporate structure. Its holding company -- Cogeco Inc. -- holds shares in Cogeco Communications and a smattering of radio stations. Investors would much prefer all the assets under one company.
Quebecor Inc. (TSE:QBR.B) is another Quebec-based Canadian telecom stock. Headquartered in Montreal, the company has quietly built a nice business inside La Belle Province. It provides home phone, cable, internet, and wireless to the people of Quebec under its Videotron brand.
It boasts more than six million different customer connections. It also owns a media division, which includes French TV channels, radio stations, and newspapers.
Finally, it is the owner of two Quebec junior hockey teams, and CEO Pierre Karl Peladeau recently became the owner of the Montreal Alouettes.
The company recently acquired Freedom Mobile, an upstart wireless operator mostly operating in Western Canada, which was divested from Shaw Communications after it was acquired by Rogers Communications in 2023.
Quebecor has experience going up against Canada's telecom giants in its home province, and it emerged as a major player. Investors are betting on it pulling off a similar coup with its new wireless assets. The price was right, too; it paid $2.85B for Freedom, an asset Shaw spent more than $5B getting off the ground.
Quebecor also boasts the sector's best balance sheet, a steady history of increasing earnings, and a lower dividend payout ratio than many of its peers. This makes Quebecor's dividend -- which is currently yielding just under 4% -- arguably the safest dividend in the sector.
Rogers Communications (TSE:RCI.B)
Rogers Communications (TSE:RCI.B) probably has Canada's best wireless network, wireline assets that extend through most of the country after it recently acquired Shaw Communications, solid media assets, and even big ownership stakes in top sports teams like the Toronto Maple Leafs, Raptors, and Blue Jays.
Despite this, shares have languished, underperforming peers for years now.There are a few reasons the market is currently pessimistic.
Rogers took on a bunch of debt to acquire Shaw, finalizing the deal just as interest rates were shooting up. It must make good progress in paying down that debt before it can increase dividends. Investors are also worried Freedom Mobile will take market share from the incumbents as Quebecor aggressively tries to get new business.
Finally, unlike most of its peers, Rogers has been unable to post any increases in earnings; it effectively earns about the same as it did five years ago.
Bulls argue Rogers could outperform over the next few years. It has the most wireless subscribers, the part of the business growing fastest. Investors aren't giving it enough credit for the sports team ownership, assets that go up over time but don't produce much cash flow.
Analysts are quite bullish on earnings, expecting big increases in the bottom line in both 2024 and 2025.
Shares currently yield in the high 3% range.
BCE (TSE:BCE) is Canada's largest telecom company with a market cap of over $50B. It boasts more than 22 million subscribers to its various services. It has a network footprint that covers more than 99% of all Canadians.
Its Bell Media division owns some of Canada's top television networks -- including TSN and CTV -- and has ownership stakes in various top sports teams, including the Montreal Canadiens.
BCE is often viewed as the least growth of Canada's telecommunications stocks, meaning the main reason to own it is the company's succulent dividend.
It has raised the payout of that dividend each year since 2009, making it a member of Canada's exclusive Dividend Aristocrat club, consisting of companies that have raised their dividends for at least five consecutive years. Dividend growth has averaged about 5% per year for the last few years.
BCE consistently boasts the best dividend yield in the entire sector. The stock currently yields an eye-popping 7%. Unlike other high-yielding stocks -- which usually have riskier payouts -- investors can sleep well at night knowing BCE's dividend is safe, secured by millions of customers addicted to their phones.
Telus (TSE:T) is our pick for the best telecom stock in Canada. It simply checks off all the boxes.
Like its peers, Telus owns both wireline and wireless assets. Its wireline assets are located primarily in Western Canada, but it competes on the wireless side throughout Canada. It has also expanded into non-telecom businesses, but unlike its peers, it avoided the media sector altogether.
Its diversification efforts focus on healthcare, digital and I.T. solutions, alarm systems, and cell phone repair stores. These initiatives, combined with that focus on wireless growth -- have helped Telus deliver better earnings growth than its peers.
This has translated into better dividend growth, with Telus consistently hiking its payout twice yearly for the last decade. Dividend growth has averaged approximately 7% yearly since the early 2010s, enticing investors who value secure dividends and growth that outpaces its peers.
Like its peers, Telus is currently trading at a depressed price as the overall telecom outlook is somewhat poor over the short term. Investors are worried about a price war in the wireless sector, and higher interest rates aren't helping it either. But these should prove to be short-term issues, giving long-term investors a nice entry point.
Are Canada's telecom stocks a good buy now?
Over the long-term, Canada's telecom stocks have provided solid returns to investors, with a basket of the largest companies in the industry providing a return of approximately 10-11% per year, including reinvested dividends, over the last 20 years.
Lately, however, Canada's largest telecom stocks have been struggling. These high-debt companies have to borrow fairly aggressively to build their networks. The last few years have seen higher than normal capex spending as wireless networks are upgraded to 5G.
This higher debt has become an issue today as interest rates have skyrocketed off pandemic lows. As a result, most of Canada's telecom stocks are well off their all-time highs, with the market worried that any additional interest rate hikes will hurt the bottom line.
The good news is this has arguably created a long-term buying opportunity for enterprising investors who can look past short-term issues. We cannot predict future returns, but generally, those who have bought these stocks at lows have earned good returns over the long term.
How safe are Canadian telecom stocks?
Despite the recent near-term weakness in their stock prices, Canada's telecom stocks are often ranked among the safest on the TSX Composite Index.
These telecom giants have one of the biggest moats in the entire market. Firstly, they've collectively invested billions in building broadband wireless and wireline networks, connecting Canadian consumers from coast to coast. It would take a massive investment from a new player to compete.
Even if someone new wanted to enter the Canadian telecom market, ownership restrictions exist. Once a foreign telecom captures 10% of the Canadian market, it must have a board of directors comprising 80% Canadians and prove a non-Canadian does not control it.
This limits deep-pocketed foreign competitors from entering the market and is likely what thwarted Verizon's attempt to enter the Canadian market in 2015.
Essentially, these stocks are an oligopoly. This is good news for investors but not-so-great news for consumers. Canadians consistently pay more for wireless services than other developed nations.