The Canadian Communications Industry is made up of only a few key players. Today I’ll be looking into Shaw Communications Inc (USA) (NYSE:SJR) and seeing how its future expected dividend growth compares to some of its competitors, namely TELUS Corporation (USA) (NYSE:TU), Rogers Communications Inc. (USA) (NYSE:RCI) and BCE Inc. (USA) (NYSE:BCE).
A quick look at the Canadian Dividend All-Star List tells me that Shaw Communications Inc (USA) (NYSE:SJR) has increased their dividend for 10 consecutive calendar years in a row. For a Canadian company this is an impressive streak. TELUS Corporation (USA) (NYSE:TU) has a streak of 9 years, Rogers Communications Inc. (USA) (NYSE:RCI) has a streak of 8 years, and BCE Inc. (USA) (NYSE:BCE) has a streak of 4 years. All of these companies have increased their dividend within the last year so when the year is over I expect them to move up one year on the list. For Shaw Communications this would make 11 consecutive years of increasing dividends.
Dividends have been steadily increasing over the years which are good signs, but it looks like the significant dividend growth occurred from 2003 to 2008, with the past 4 or 5 years showing a slowdown in dividend growth.
The most recent monthly dividend increase happened with the dividend recorded in March 2013. The monthly dividend increased by 5.2% from $0.0808 CAD to $0.0850 CAD. The latest increase is what I’d expect as you can see that more recent annual average dividend growth rates are around 5%.
The 5 and especially the 10 year average annual growth rates are high, and both above the 8% rates I like to see. The dividend growth rates have slowed in the past few years, and I’d like to see them get back over 8% if they can be paid out in a sustainable manner. I’ve said before that past dividend growth rates can be used to predict future rates, but the 10 year average annual rate is very high and a similar rate going forward would not be sustainable. When EPS growth is compared to dividend growth you can see that dividends have been growing at much faster rate than EPS.
I’ve shown the 12 year average annual growth rate instead of the 10 year rate because of the negative EPS in fiscal 2001 to 2003. As you can see dividend growth has been about double that of EPS, which is not a sustainable trend.
Dividend sustainability & expected future dividend growth
To get a better idea of the dividend growth going forward the past payout ratio and estimated future earnings should be examined.
Shaw Communications Inc (USA) (NYSE:SJR) payout ratio at the end of the most recent fiscal year was 58.7%. For most companies a payout ratio of 60% or less is good, but some industries like the cable/telecom industry typically have higher payout ratios (60-80%).
If we look at the chart we can see that the payout ratio for the past 5 years is usually around 60% to 70%, with the exception of 2008 when it spiked up. I expect Shaw Communications Inc (USA) (NYSE:SJR) to try and maintain a similar level (60-70%) going forward.
Estimated Future Earnings
Analysts are currently estimating that Shaw Communications will grow its EPS at 5.97% annually for the next 5 years. It is best to take these estimates with a grain of salt as a lot can happen in 5 years, and the further away the estimate the less accurate it gets. That said analyst estimates can still be useful when trying to guess future dividend growth rates (The key word being guess).
Based on Shaw Communications Inc (USA) (NYSE:SJR) previous payout ratios and the estimated future earnings I’d expect Shaw Communications to continue to raise its dividend annually at a rate around 5.2% to 8.5%. Based on the past few years of dividend growth at around 5% annually I’d expect the dividend growth to be at the lower end of the 5.2% to 8.5%.