Telus Corporation (TSX: T.TO, NYSE: TU) | Daily Alert June 15
Telus claims to be Canada’s fastest-growing telecommunications company, with $14.7 billion in revenue in 2019 and 15.2 million subscriber connections. The company provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada’s largest healthcare IT provider.
Telus split its shares 2 for 1 in March, just before the market swooned. The stock has been struggling to claw back those losses since.
Telus reported first-quarter results that were largely in line with analysts’ estimates and did not indicate any serious fall-out from the recessionary impact of the coronavirus. Operating revenue was $3.9 billion, up 5.4% from $3.5 billion last year. Adjusted net income was $400 million ($0.32 per share) compared to $453 million $0.38 per share) in the same period last year. The company said that high depreciation and amortization costs due to recent acquisitions contributed to the profit drop. An increase in the number of outstanding shares reduced the EPS results.
Telus reported free cash flow of $545 million, up by $392 million over the same period a year ago. This resulted primarily from decreased income tax payments, lower device subsidy leasing amounts, lower restructuring and other costs disbursements, and higher EBITDA.
The company said it had 70,000 net wireless additions during the quarter, of which 21,000 were high-quality mobile phones. There were also 36,000 net wireline additions.
“Our robust and consistent performance over the longer-term, coupled with our strong financial position, positions us well to navigate the uncertainty caused by the global COVID-19 pandemic, as well as for anticipated post-pandemic economic challenges and market opportunities,” said CEO Darren Entwistle.
CFO Doug French said the company is in a sound financial position. “We have a strong balance sheet, further supported by our successful $1.5 billion equity offering in February, with available liquidity of over $3 billion and no debt maturities until 2021. This puts us in an enviable position to navigate this period of uncertainty, and to continue to grow the business and prosper in the post-COVID-19 environment,” he said.
The company withdrew its previous 2020 guidance and said it would issue revised guidance at the time of the second-quarter results, expected at the end of July.
The stock pays a quarterly dividend of $0.29125 ($1.165 a year).
This is another company that appears to be well-positioned to deal with the COVID recession and the dividend is very attractive.
Action now: Buy.
Gordon Pape, Internet Wealth Builder, buildingwealth.ca, 1-888-287-8229, June 1, 2020
Altria Group, Inc. (MO) | Daily Alert June 16
Altria Group is the largest U.S. domestic cigarette maker and one of the largest in the world. The company is the domestic part of the old Philip Morris that spun off the international division in the form of Philip Morris International (PM) in 2008. Altria now operates primarily in the United States.
In addition to cigarettes, Altria also sells E-cigarettes, marijuana, beer, wine, and smokeless products. Altria also owns a 10.2% stake in the world’s largest brewer Anheuser-Busch InBev (BUD). It may seem like a diversified company, but it really isn’t. About 85% of net revenues are generated from cigarettes and the overwhelming majority of that is from its flagship Marlboro brand, which commands a stratospheric 40%-plus cigarette market share in the U.S.
That’s a problem. In case you haven’t heard, cigarettes are bad for you. The volume of cigarette smoking is declining by about 4% to 6% per year. Of course, it has been declining at a 4% pace for decades. And over that time Altria has been able to more than compensate for the declines by raising prices and via share buybacks. The company still grew annual earnings at a solid rate and had been one of the best performing large stocks in the index.
But things are changing.
The rate of annual volume declines is increasing because more people are opting for E-cigarettes, especially young smokers. To answer that problem, Altria purchased a 35% stake in dominant E-cigarette brand JUUL in late 2018 for $12.8 billion. It has since been the acquisition from Hell. JUUL has been under relentless assault by regulators primarily for marketing to young people. There is now even a question if E-cigarettes will be allowed to be sold at all.
Altria has already written down $8.6 billion of the investment. The market hasn’t liked this, and the stock is down about 50% from the 2017 high and near a five-year low.
But here’s the thing. If E-cigarettes get sued out of business Altria will sell more cigarettes. If E-cigarettes survive, Altria owns the dominant company in the space. It’s will ring the register either way. Plus, Altria has other growth opportunities.
In late 2018, Altria purchased a 45% stake in Canadian Cannabis company Cronos (CRON) for $1.8 billion. Legal cannabis is a huge growth industry still in its infancy. But the growth is undeniable. The trend toward legalization is clear and could accelerate as states opt for additional tax revenue to compensate for the budget shortfalls from this recession.
Altria, with its unparalleled regulatory expertise, deep pockets and marketing should be able to cash in on some of that growth going forward. As well, the company has a joint venture with Philip Morris International to sell heated tobacco product IQOS throughout the U.S. It is the only such product with FDA approval and could potentially capture much of what has been lost by E-cigarettes.
In the meantime, the company continues to grow earnings per share. Management is forecasting high single digit annual growth for the next several years. Earnings grew over 18% in the first quarter as people are smoking more during the pandemic.
Is that massive dividend yield safe? I think it is rock solid. The company has a rather high 80% payout ratio, but that is the historical average. And the company has raised the payout every year for the last 50 years.
Historically, this has been one of the best and most reliable dividend paying companies on the market because the company generates an obscene amount of free cash flow, money left over after expenses. To give you an idea, in 2019 Altria generated $7.6 billion in free cash flow and paid $6.1 billion in dividends.
This is one of those companies that is actually doing better during this recession as people tend to smoke more. It can offset volume declines with price hikes and share buybacks. But it also has some promising growth prospects for the longer term. Meanwhile, that big fat dividend should be safe, and the stock is priced near a five-year low.
Tom Hutchinson, Cabot Dividend Investor, cabotwealth.com, 978-745-5532, June 10, 2020
*ViacomCBS Inc. (VIAC)
New York-based ViacomCBS (VIAC) is a mass media company that creates and distributes content to audiences around the world. Founded by Sumner Redstone in 1986, the company operates its business in segments that include news and entertainment, cable networks, publishing, and local media. Its entertainment assets include the CBS Television Network, CBS Television Studios, and CBS Interactive, while cable networks encompass Showtime, CBS Sports Network, and Smithsonian Networks.
ViacomCBS also operates in consumer book publishing with imprints like Simon & Schuster and Scribner. Revenue this year is expected to dip 5.2% to $26.4 billion, and earnings are forecast to decline 25.1%. Despite the tough year, pessimism is already reflected in the discounts to historical valuations: VIAC trades 51.6% below its five-year average price-to-sales ratio, and 53.1% below its average price-earnings ratio. Dividends have grown 17% a year over the past decade,
John Dobosz, Forbes Dividend Investor, newsletters.forbes.com, 212-367-3388, June 6, 2020