Monday, April 30, 2007

more Telus = latest stock purchase

Recently I doubled my stake in Telus. I buy shares through their share purchase plan, so I don't pay any commission, which is a great benefit. Luckily the actual transaction occurs on May 2, 2007 - so I might get the benefit of the big 4.6% drop in the shares today.

Rationale Here:

I'm sure all have heard about the recent media storm around the potential take out of BCE (Bell Canada Enterprises) by teachers, KKR, etc. BCE is one of the largest held stocks in Canada. Shareholders of BCE: have sold already due to the 30% run-up in the share price, will sell before the deal is complete, will tender shares as the deal is made. This will leave several Canadians with some money to invest. Where will they put that capital?

The answer in my opinion is Telus.

Some of the funds will go into Telus driving the share price higher or at least creating some nice support for the share price.

Why?

There are not many dividend paying telcom companies in the Canadian market and telecommunications tends to be a sector that people rely on for it's cash flow stability, and resistance to economic trends.

I would argue instead, why not?

Telus is not expensive currently trading at 18.4 earnings. They have been growing earnings at rates well over 12% per year.

ROE has been increasing steadily over the past few years.

They are getting in the habit of raising their dividend nicely (the current yield is 2.5%) , and this is expected to continue given their earnings growth strength. Their latest dividend increase was by 36%, before that they raised by 35%.

If and when BCE becomes a private company they will likely rely more on stable cash flow, take less risks, and invest less in the business, making them easier to compete against.

I am not a financial advisor, use this information at your own risk.

1 comment:

MillionDollarJourney.com said...

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