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Shaw Communications Hikes Dividend

Zacks Equity Research

The Canadian cable MSO Shaw Communications Inc. (SJR) has raised its dividend rate. The Board of Directors has increased annual dividend rate to $1.02 on its Class B Non-Voting Participating Shares and $1.0175 on its Class A Participating Shares. This represents an increase of 5% or $0.05 per share.

Revenue growth along with improvement in margins and free cash flow as the company discontinued its promotional activities altogether contributed to the dividend hike. Whenever the company tried to reduce its promotional activities, it lost a large amount of pricier subscribers. On the other hand, higher promotional activities are impairing its bottom line and free cash flow. It seems management has finally found out an appropriate trade-off between these two situations.

In the first quarter of fiscal 2013, Shaw Communications revenue increased 3.1% year over year. Notably, the company’s revenue increased in all its three reporting segments. While the Cable segment revenue inched up 2.1%, the Satellite segment and Media segment revenue climbed 2.4% and 6.7% respectively. Shaw Communications has launched - “Shaw Go” - an innovative TV Everywhere service, which is available only on Apple Inc.’s (AAPL) iPad 2 and iPhone 5.

In the first quarter of fiscal 2013, consolidated operating margin of the company was 45.6% compared with 44.2% in the prior-year quarter. Cable segment operating margin inched up 1.3% to 48.9%, Satellite segment operating margin increased 1.6% to 34.6% and the Media segment also follow suite with a 1% operating margin expansion to 41.1%. Quarterly free cash flow skyrocketed to C$244 million from just CS$119 million in the year-ago quarter.   

We maintain our long term Outperform recommendation on Shaw Communications. Currently, the stock has a short term Zacks Rank #2 (Buy).

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