Looking for strong yields and dividend growth? Portfolio manager Colum McKinley has his eye on Canadian telecoms.
McKinley, who’s vice-president of Canadian equities at CIBC Asset Management in Toronto, says he’ll maintain exposure to these companies and that two of his top picks are BCE, which reported positive earnings last week, and Telus. McKinley manages the Renaissance Canadian Core Value.
He explains, “Not only do these companies provide very strong and attractive dividend yields, but they also have a very interesting relationship with their customers, in that they have an […] contract relationship.”
McKinley compares telecoms to consumer stocks, but mentions one difference: “unlike a retailer that has to compete for you to come into their store, [these are] business[es] that have a relationship based on a contract; we all have cell phones and cable subscriptions and, month after month, we continue to pay fees. That generates incredibly strong cash flow for these businesses.”
Currently, he adds, telecoms “generate yields of around 4.5% or higher, and continue to grow their dividends. That’s quite an attractive opportunity for investors.”
Read: Best source of dividend growth in Canada
Another positive is telecom customers remain committed for long periods of time. Says McKinley, “We’re always looking for […] good, long-term businesses that are going to provide ballast and stability. Telecom stocks in the Canadian marketplace do just that.”
However, no investment is without risk. For telecoms, “[that] will come in the form of regulatory change. We continue to monitor for challenges as they may develop.”
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