Rogers Plunges After Favoring Debt Decrease Over Dividend Raise

  • Stock falls as much as 6.5%, most intraday since June 2013
  • CFO: investors should see Rogers as more than a dividend play

Rogers Communications Inc. fell the most in 2 1/2 years after skipping an expected dividend increase in favor of cutting down its debt.

Analysts had forecast a dividend raise of 5 percent, RBC Capital Markets analyst Drew McReynolds said in a note to clients Thursday. Instead, Canada’s biggest wireless provider kept it at 48 Canadian cents (34 cents) a share. The company said it wants to bring its ratio of adjusted net debt to operating profit down to 2.5 from 3.1. Rogers has C$18.4 billion in outstanding debt, according to data gathered by Bloomberg.

The estimated dividend increase would’ve cost Rogers about C$13 million a quarter, an amount that will put a modest dent in the phone carrier’s debt.

“This is a significant negative in our view given the focus of Canadian yield investors on steady dividend growth,” Canaccord Genuity Corp. analyst Aravinda Galappatthige said in a note to clients. Rogers fell 6.3 percent to C$47.65 at 9:47 a.m. in Toronto.

Telecommunications companies like Rogers and BCE Inc. are some of Canada’s most reliable dividend-paying stocks, but the company chose to forgo an increase to bring down a debt ratio that had climbed over the past quarters. Rogers bought bankrupt rival Mobilicity for C$440 million in July and faces the prospect of spending hundreds of millions on new wireless airwaves when the federal government auctions off spectrum sometime in the next two years.

“Our value really comes from building a solid growing business rather than just a dividend play,” Chief Financial Officer Anthony Staffieri said on a conference call with reporters.

Earnings Miss

The dividend decision compounded a fourth-quarter earnings report that missed analysts’ estimates as increased competition for subscribers led to higher advertising and promotions costs. Profit excluding certain items was 64 Canadian cents a share, the Toronto-based company said Wednesday, compared with the 69-cent average estimate.

Rogers is the most highly levered among Canada’s biggest wireless carriers. BCE Inc. has C$15.6 billion in outstanding debt and a net debt-to-Ebitda ratio of 2.48, while Telus Corp. has C$11.3 billion in debt and a ratio of 2.22, according to data gathered by Bloomberg.

Rogers bonds were largely unchanged Wednesday, with the widely traded 10-year bond maturing in December 2025 around par at $99.266.

Staffieri said the decision shouldn’t suggest that Rogers is concerned about growth.

“We’re making our decision based on what we think is the right balance sheet for us,” he said. “There’s always challenges but we continue to see us as being able to execute on those and deliver on the guidance we provided.”

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