Scotia analyst views divvy to be safeThe Scotia analyst lowered his target to $14/share from $15/share to reflect lower earnings. He kept his Sector Outperform rating due to the attractive dividend and current valuation. I've pasted an excerpt from his note below.
On Shaw, not sure we view it as a negative that it is opting for a cash dividend. Shaw has significant capex in the next 2 years as it needs to upgrade its networks in order to try to compete with its big dog competitors. The Scotia analyst downgraded Shaw last week due to higher forecast wireless capex. Shaw already owns a huge stake in Corus, has heavy capex in 18-19 so wants the cash.
Target Lowered to $14 on Lower Estimates
OUR TAKE: We have lowered our revenue, EBITDA, and FCF estimates on Corus going forward but still see upside given the dividend yield. We have lowered our forecasts for F18 and F19 for CJR but maintain our Sector Outperform rating due to CJR’s solid 9.1% dividend yield. We believe the company is very committed to the dividend and we estimate the F18 payout is manageable at approximately 62% including the cash dividend payment to Shaw Communications (SJR). Furthermore, we believe that the company’s sale of Series+ and Historia to Bell offers the company additional financial flexibility. CJR currently trades at 7.8x EV/EBITDA, 13.5% FCF yield, and 9% dividend yield, which we believe is attractive.
We believe that CJR is committed to their dividend and that the F18 payout ratioof 62% will be very manageable. With Shaw Communications opting for a cash dividend instead of participating in the DRIP starting in F18, we forecast Corus’ dividend payout ratio to grow from 39% in F17 to 62% in F18. Despite the increase, we believe that this level of dividend is sustainable for CJR given the company's revenue and EBITDA stability, which makes current valuation very attractive (9% dividend yield, 13.5% FCF yield).