BELL ALIANT INC. $27(Toronto symbol BA, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 229.0 million; Market cap: $6.2 billion; Price-to-sales ratio: 2.3; Dividend yield: 7.0%; TSINetwork Rating: Average; www.bellaliant.ca) sells telephone and Internet services to 2.6 million customers in Atlantic Canada and rural parts of Ontario and Quebec. It also sells wireless services through an alliance with BCE, which owns 44% of Bell Aliant.
The company continues to replace its copper-wire cables with fibre optic lines. That’s letting it sell more high-speed Internet and digital TV services, which are offsetting falling demand for land lines. (Traditional phones still supply 55% of Bell Aliant’s overall revenue.)
The company’s fibre optic systems now reach 574,000 homes. It aims to increase that to 650,000 by the end of 2012.
To meet that goal, Bell Aliant plans to spend $550 million to $600 million on network upgrades in 2012. It expects to generate $1.1 billion of cash flow this year, so it can easily afford this investment.
That also leaves Bell Aliant with enough room to keep paying quarterly dividends of $0.475 a share, for a 7.0% annualized yield. It will probably spend a total of $437 million on dividends for all of 2012.
Meanwhile, the company’s revenue fell 0.7% in the three months ended June 30, 2012, to $687.7 million from $692.6 million a year earlier. Strong gains from Internet TV (up 79.6%), wireless (up 14.6%) and Internet services (up 5.8%) were more than offset by declines in local phone service (down 5.4%) and long distance (down 11.6%).
Bell Aliant earned $79.3 million, or $0.35 a share, in the quarter. That’s down 5.0% from $83.5 million, or $0.36 a share, a year earlier. If you exclude writedowns and other unusual items, earnings per share fell 2.3%, to $0.42 from $0.43.
The stock trades at a reasonable 15.6 times Bell Aliant’s projected 2012 earnings of $1.73 a share.
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