Rogers Communications Stock Drops 20%: Is It a Smart Investment?

Investors are weighing the merits of purchasing shares in Rogers Communications (TSX: RCI.B) after the company’s stock has declined by 20% from its all-time high. This drop comes despite central banks in Canada and the United States cutting key interest rates, while inflation remains a persistent challenge for Canadian households. Many individuals are exploring investment opportunities in the stock market as a way to improve their financial standing amid rising mortgage payments and overall living costs.

One viable strategy gaining traction is dividend investing, which provides a dual benefit of immediate income and long-term capital gains. High-quality dividend stocks that are currently trading at a discount present an appealing option for investors looking to enhance their portfolios. With this context, Rogers Communications emerges as a notable candidate, particularly given its current valuation.

Rogers Communications Overview

Rogers Communications is one of the leading telecom providers in Canada, claiming around a third of the market with over 10 million subscribers. The company offers a range of services including wireless, cable, and internet across the nation. Recently, Rogers completed its acquisition of Shaw Communications, which has solidified its position among the top three telecommunications companies in Canada. This acquisition has broadened Rogers’ customer base and strengthened its market infrastructure.

The company’s robust fundamentals have allowed it to navigate various challenges effectively. In the first quarter of fiscal 2025, Rogers reported a 2% year-over-year increase in earnings before interest, taxes, depreciation, and amortization (EBITDA). The telco’s service revenue also rose by 2%, showcasing its resilience in a competitive landscape. Notably, Rogers achieved an industry-leading 65% EBITDA margin in its wireless sector, contributing to an overall EBITDA margin of 45%.

Financial Performance and Dividend Potential

Despite rising costs and economic pressures, Rogers Communications has demonstrated a commendable performance. The company has successfully reduced its net debt leverage ratio from 4.5 times during the merger process to 3.6 times currently. This improvement underscores the company’s financial health and ability to manage its liabilities effectively.

Dividends play a crucial role in attracting investors to Rogers Communications. As of now, the stock trades at $44.92 per share and offers a quarterly dividend of $0.50, resulting in a 4.45% dividend yield. This yield presents a competitive advantage over traditional fixed-income assets, making Rogers an appealing choice for those seeking passive income. The company has maintained its dividend payouts throughout economic downturns, including the COVID-19 pandemic and major mergers, demonstrating its reliability as a dividend stock.

Trading at a 20% discount from its 52-week high, now may be an opportune time to consider adding Rogers Communications to a self-directed investment portfolio.

For potential investors, it is essential to weigh the current stock price against the company’s performance metrics and dividend history. While Rogers Communications has displayed resilience and growth potential, it’s advisable for individuals to conduct thorough research before making any investment decisions.

Before investing, it is worth noting that analysts from The Motley Fool’s Stock Advisor Canada have identified other stocks they believe hold greater potential for returns in the coming years, suggesting that Rogers Communications may not be the top pick for everyone.

Investors are encouraged to consider all options carefully, keeping in mind both the opportunities and risks associated with stock market investments. As always, a well-rounded portfolio may yield better results over time, particularly in today’s challenging economic climate.