Topic: Dividend Stocks

MANITOBA TELECOM SERVICES INC. $31 – Toronto symbol MBT

MANITOBA TELECOM SERVICES INC. $31 (Toronto symbol MBT; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 77.1 million; Market cap: $2.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 5.5%; TSINetwork Rating: Average; www.mts.ca) gets around 55% of its revenue from its 1.3 million telephone and wireless customers in Manitoba.

The remaining 45% comes from Allstream, which sells integrated telephone, Internet and other communication services to businesses across Canada.

The company has suffered a couple of setbacks in the past few months. The first came late last year, when Ottawa blocked its plan to sell Allstream for $405 million to a private firm controlled by an Egyptian billionaire.

Allstream has struggled in the past few years, mainly due to intense competition from larger telecoms, like BCE and Telus. Moreover, Allstream mainly sells landline services, so it can’t offer bundles that include wireless phones. Manitoba Telecom is now making Allstream’s networks faster, which should help it compete.

As well, the company recently lost a lawsuit related to the funding of an employee pension plan after the company’s 1997 privatization. The ruling increases its pension obligations by up to $142.1 million. Manitoba Telecom recently sold $238 million worth of new common shares, so it has enough cash to cover this cost.

However, the company continues to benefit from rising demand for wireless and high-speed Internet services in Manitoba. It ended 2013 with 501,388 wireless customers, up 0.8% from 2012. Rising demand for wireless data downloads increased its average monthly revenue per subscriber by 3.2%.

Manitoba Telecom also had 192,928 high-speed Internet subscribers at the end of 2013, up 7.5%. Revenue per subscriber rose 3.0%.

The company will probably spend $315 million on network upgrades this year, up 6.4% from $296 million in 2013. Even after these outlays, it will have free cash flow of $150 million. That will let it maintain its annual dividend payout of $1.70 a share (5.5% yield), which would total around $130 million.

The company will probably earn $1.84 a share in 2014, up 8.9% from $1.69 in 2013. The stock trades at 16.8 times that estimate.

Manitoba Telecom is a hold.

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