While the stock will only yield 1.1%, Mr. MacKay sees the company’s strong free cash flow and balance sheet driving future dividend increases.
He also compared Rogers shares to that of competitor Shaw Communications Inc. (SJR), with the latter having traded at slight premium because it is viewed as a takeover target. However, Mr. MacKay thinks highly of this premium due to the fact that Shaw has been returning its free cash flow to shareholders via share buybacks and dividends.
Given Rogers’ dividend increase, he sees the valuation gap between the two companies narrowing. Mr. MacKay reiterated his “top pick” rating, and C$53 price target on Rogers' shares, which represents an upside of roughly 19%.
RBC Capital Markets analyst Jonathan Allen agrees that what he considered a surprising dividend boost will be a catalyst for Rogers' shares. He reiterated his “top pick” rating, and C$52 price target.
While the stock got a healthy lift on Monday following the news, “the higher dividend is just the start to Rogers’ transition to a more shareholder-friendly company and believe there is still significant upside to RCI shares,” Mr. Allen said in a research note. It also added that the company could, and should, announce a share repurchase program by 2008.
“Rogers is transforming from a perceived high-risk/high-leverage company into a blue-chip stock due to consistent profitability, falling debt leverage and is starting to return capital to shareholders,” he added.