Friday, December 6, 2013

Recent Buy: SJR

Dec 4, 2013: Bought 105 shares of SJR at $23.03 per share.

Shaw Communications Inc. (SJR) is Canada's largest broadcast service provider. The company operates in two business segments, Cable and Satellite, providing broadband television, Internet, digital phone and telecommunications services, as well as satellite direct-to-home services and entertainment programming content.

With an 11-year streak of dividend increases, SJR is a Dividend Contender. It pays monthly dividends. Starting Yield on Cost is 4.30%.

SJR easily outpaced the S&P 500 over the last 10 years, more than doubling its 68% return:


Despite SJR's earnings per share being quite sporadic, its dividend growth over the past ten years has been impressive:


Analysis of SJR


Fair value estimates for SJR range from $17.15 (Graham Number method) to $25.00 (Zacks Investment Research), with a mean of $21.74. SJR trades at a premium of 3.75% to the mean estimate.

The following table provides some key statistics for SJR:

The Chowder Dividend Rule requires that the sum of SJR's dividend yield and its 5-year dividend growth rate exceed 12%. For SJR, the sum is 16.55%. SJR also passes the following of my selection criteria:
  • 7-year weighted average dividend growth rate is at least 7% (21.52%) 
  • Price to Earnings ratio is less than 16 (14.92x and 14.61x)
  • Dividend payout ratio is below 65% (63.49%)
  • Estimated 5-year total payback percentage exceeds 16% (21.59%)
SJR's Debt to Equity ratio is 125%,  well above my 50% target.

SJR appears in my December dashboard as a 5-star stock: (*******)

Other ratings for SJR


 Zacks Rating  3 Hold
 MorningStar Rating  (*****)
 The Motley Fool's CAPS Rating  (*****)

Concluding Remarks


So far, I've been focussing on expanding the number of holdings in DivGro, favoring acquisitions of stocks trading at a discount of at least 5% to fair value. In doing so, I've somewhat neglected my goal to have a diversified portfolio at year's end. I've only invested in six out of ten available sectors.

This month, I'm switching my focus to diversification, with my first buy in the Consumer Discretionary sector, SJR. I like the stock for several reasons, including its great dividend yield and a solid dividend growth rate. Also, it is nice to receive dividends every month instead of less frequently.

SJR is gradually expanding its Wi-Fi network, which, along with the company's initiative for a super-fast fiber-optic network and the newly-launched TV Everywhere service, will support long-term growth prospects. SJR plans to use earnings to continue expanding its business and returning cash to shareholders.

Not everything is rosy with SJR, of course. As mentioned, SJR has a rather high Debt to Equity ratio, which could dampen dividend growth. Also, SJR is experiencing strong competition from other players in the highly lucrative Canadian telecommunications market, particularly from Telus Corporation through its IPTV offering. Increasing network fees also will negatively impact margins.

Given SJR's strong dividend yield and dividend growth rate, I feel SJR is a good addition to DivGro. An added bonus is that the purchase of SJR diversifies DivGro into the Consumer Discretionary sector.

105 shares of SJR represent $107.10 of expected annual dividend income, which increases DivGro's projected annual dividend income to $2,591.02.

SJR is the 20th dividend stock purchase for DivGro.

Full Disclosure: Long SJR

2 comments :

  1. Good move on SJR. I considered it and ended up buying PJC.A instead last month. I still like SJR and am thinking of adding it to my portfolio.

    ReplyDelete
    Replies
    1. Thanks for your comment! I usually go only for stocks trading at a discount of at least 5%, so this one is a little out of that comfort zone... however, I feel its time to diversify more. Good luck with your portfolio!

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