Telecom stocks have appeal for investors looking for dividend growth

Yields are attractive, but other fundamentals look bleak for Canada's Big Three.

Michael Leonard 13 March, 2014 | 6:00PM

Canadian telecommunications stocks face adversity on the regulatory front that has contributed to their lacklustre market performance and clouded their future prospects. Even so, telecom giants BCE Inc. BCE, Telus Corp. T and Rogers Communications Inc. RCI.B should draw interest from investors who are focused on dividend growth.

The latest salvo against telecom's Big Three -- which control approximately 91% of the wireless market and whose stock prices struggled to keep up with the S&P/TSX Composite Index in 2013 -- came in the Feb. 12 federal budget. Finance Minister Jim Flaherty announced that legislation would be introduced to cap wholesale domestic wireless roaming rates and impose penalties on companies that violate regulatory requirements.

This was confirmation of an earlier announcement on Dec. 18 of the government's intentions to limit what the Big Three could charge their smaller rivals for network access. Currently, these fees are often much higher than what the Big Three charge their own customers.

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Michael Leonard

Michael Leonard  Michael Leonard, CFA, is chief equity strategist at Morningstar Canada.

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