Canadian Dividend All-Stars Expected To Announce Dividend Increases - Week Of April 10-14, 2017

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Includes: CSUWF, MTYFF, PBA, SJR
by: Mat Litalien

Summary

Last week saw two surprise dividend increases from monthly dividend payers.

Shaw Communications is Canada's lone Dividend All-Star expected to release earnings.

Shaw's declining FCF is putting their dividend growth streak at risk.

Leading up to the Easter weekend, the week of April 10th to April 14th sees only one Canadian Dividend All-Star, Shaw Communications (NYSE:SJR), due to report earnings. Will they raise their dividend? Let's take a look.

LAST WEEK - RESULTS

Before we get to the likelihood of Shaw raising their dividend, last week I questioned whether or not MTY Food Group (OTC:MTYFF) would come through with a dividend raise. Unfortunately, MTY did not report earnings last week. After double checking three separate reliable sources, all confirmed that MTY was expected to announce earnings this past Wednesday and as of Friday, they still had not reported earnings. As such, it is unknown when they will report first quarter earnings but I will be sure to provide an update when they do. On the other hand, we did have a few surprises last week.

In one of my previous articles, I had indicated that it was particularly challenging trying to time the announcement of monthly dividend payers. Unlike quarterly payers which are fairly predictable, monthly payers are far more inconsistent when it comes to announcing dividend raises. This point was further exemplified this past week as two monthly dividend payers, Pembina Pipeline Corp. (NYSE:PBA) and Enercare (OTCPK:CSUWF) both announced a raise sooner than expected.

Pembina (TSE-PPL), which is dual listed, announced a monthly raise on Monday of last week. Last year, Pembina announced their dividend raise in March, in 2015 they announced their increase in the first week of April, and in 2014, their announcement came in the second week of April. As you can see, although they appear to stick to a general time frame, it makes it very difficult to predict the exact week in which they will announce. Regardless, investors should be happy as the 6.25% increase is higher than their 1YR, 3YR, 5YR and 10YR averages.

Enercare (TSE: ECI) has proven to be even less predictable than Pembina as they raised their dividends on Tuesday after only 9 months since their previous increase. This, after waiting 14 months between dividend increases prior to 2016's raise. Whereas Pembina's increase was above historical averages, Enercare's increase last week was significantly below their 1YR and 3YR rates of approximately 9% and 5YR 6% average.

WILL THEY OR WON'T THEY

Shaw Communications (TSE: SJR.B) - Current Streak - 14 YRS, Current Yield - 4.27%

Earnings Release Date: Wednesday, April 12

Shaw Communications is a cable and communications company that has four operating divisions: consumer, wireless, business network services and business infrastructure. Its wireline division offers over 120 HD channels and over 10,000 on-demand, PPV, subscription and television titles. Shaw's current 14 year dividend streak is in the upper echelon of Canadian Dividend All-Stars; however, they have left their dividend unchanged for 25 consecutive months. Despite the long period of stagnation, this monthly dividend payer has still managed to payout higher earnings in consecutive years. On a historical basis, Shaw announces monthly dividends on a quarterly basis for the following three months and typically announce their June, July and August payments in April.

What can investors expect: Shaw's current yield of 4.27% is in line with their peers in the Communications Services sector and is an attractive starting point for dividend investors. However, their dividend growth rate has seen a dramatic drop over the years. Their 10YR average is an impressive 15% but their 3YR and 5YR dividend growth rates come in at 5.3% and 5.4% respectively. It also gets worse and because they have gone so long between raises, their 1YR growth rate is a miniscule 1.2%. Investors can be misled by their payout ratio as a percentage of earnings as it shows a fairly respectable 52%. However, it is their payout ratio as a percentage of free cash flow that explains their dividend stagnation. Shaw last grew FCF/share back in 2014 but since then it has consistently dropped YOY. As of end of 2016, their dividends paid of C$393 million accounted for 82% of FCF (C$482 million). Through the first quarter of 2017, it doesn't look any better as FCF actually decreased from C$178 million in Q1 2016 to C$153 million. Their most recent outlook states that FCF is expected to exceed $400 million in 2017 but I anticipate it will most likely come in below 2016's FCF number. As a result, their dividend payout ratio as a percentage of FCF will be pushed even higher. Given these numbers, Shaw will be hard pressed to raise their dividend this year. Should they decide to raise, I expect at most a 5% raise to a new monthly rate of C$0.10374/share.

SHAW NEEDS A RETURN TO FCF GROWTH

Last week saw two monthly dividend payers surprise with increases, whereas this coming week sees another hard to estimate monthly dividend payer report earnings. Given their inability to grow cash flows, I believe that Shaw will continue to struggle with future dividend raises. Having already announced dividends through May of this year, Shaw effectively has only 7 months in which to pay a higher dividend before losing their status as an All-Star. That being said, they currently rank 22nd (out of 102) on the Canadian Dividend All-Star list as far as longest streaks are concerned so you can't count them out just yet. However, dividend growth investors should prepare for any immediate or short-term increase to be marginal at best.

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Disclosure: I am/we are long PBA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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