In today's depressed interest rate environment, the 5.4-per-cent dividend yield on the common shares of Manitoba Telecom Services Inc. is huge.
To get a return that high from an investment-grade bond, you'd probably have to look at something that doesn't mature for 10 years or more. The best you'll get from a bank or credit union guaranteed investment certificate these days is 4.6 per cent for five years.
Then again, a high dividend yield often signals that investors are concerned about a company's ability to maintain its quarterly payouts. Is there too much doubt associated with Canada's third-largest national telecommunications provider to make it worth the risk?
Beats me, frankly. If I wanted to know the answer to that question, I'd check what an analyst had to say.
It's hard not to have an ambivalent attitude toward analysts employed by investment dealers.
On the one hand, there's the preponderance of "buy" ratings and the ever-present suspicion that analysts are pulling their punches so as not to poison any existing or future business relationships between their employers and the companies they rate. On the other, analysts have a certain allure because of their ability to pull a "buy," "hold" or "sell" rating out of a sea of numbers that mean little or nothing to most investors.
If you're a client of an investment adviser at an investment dealer of any size, then you should have access to reams of in-house research. Everyone else will want to make note of the on-line sources of analyst reports that we're going to look at today.
Let's start with free stuff. There's not much of it available on the Internet these days, but a couple of sources are worth noting.
On-line brokers, also known as discount brokers, are one place to look. Many of them offer account holders unlimited free access to reports written by analysts who are employed by a full-service brokerage in the same corporate family.
The best on-line brokers in this regard are CIBC Investor's Edge (offering research from CIBC World Markets), ScotiaMcLeod Direct Investing (offering Scotia Capital research) and TD Waterhouse (offering TD Newcrest reports). With each, you just go to the research area of their secure client websites and type in the symbol of the stock for which you'd like a report.
MTS, under the leadership of chief executive officer Bill Fraser, was the subject of a report issued Nov. 8 by Dvai Ghose and Corey Dias of CIBC World Markets. They addressed the dividend issue head on: "If MTS's most obvious selling point is its current 5.9-per-cent dividend yield [the yield was higher then], its potentially biggest long-term risk is the sustainability of its dividend," they wrote in a report.
The report says the dividend looks safe for the next six or seven years, a period in which MTS will benefit from certain tax savings. "While clearly only a longer-term risk, we believe that investors should be aware that MTS's transition to a fully-taxed regime could create challenges in terms of dividend sustainability."
CIBC gives MTS a middling "sector performer" rating, while Scotia Capital has a somewhat alarming "sector underperform" rating and a one-year target price that was about $7 below its level at the time this article was written.
"Although MTS's dividend yield is attractive, its payout ratio is closing in on 100 per cent, in a declining business," Scotia's John Henderson wrote on Nov. 25. "Cash earnings should cover the dividend for three to five years."
In rare cases, company websites can be useful in finding analyst reports. MTS's site is typical of a big corporation in that it simply lists the analysts who cover the firm, but a few companies may offer free, downloadable reports or at least report excerpts or quotes from these documents.
Some examples of companies that do this were uncovered by doing a Google search -- they include Wheaton River Minerals, Corriente Resources, Anooraq Resources, TransForce Income Fund and Trinidad Energy Services Income Trust. You'd have to expect a positive bias in free reports made available by a company, so be sure to seek alternative views.
Investors willing to pay for analyst reports should make a point of checking out the Investing area of Reuters.com. If you click where it says "Research Reports," you'll find a searchable database of reports from analysts at both U.S. and Canadian investment houses. Just click on the report you want, provide payment information and away you go.
A search for reports on MTS (type .TO after the symbol for Canadian stocks, as in MBT.TO) found more than 50 documents produced in the past two months or so. A few Canadian investment dealers were represented, as were some independent reports.
The cost of reports available on Reuters.com range from as little as $10 (U.S.) to $120, which is comparable with the price of analyst reports sold on the Yahoo Finance website at finance.yahoo.com. To get an inventory of Yahoo's reports for a particular stock, get a quote and then look for the "Research Reports" link (again, type .TO after the symbols for Canadian stocks). Note: Only Canadian equities with a listing on the New York Stock Exchange seem to be included in Yahoo's report inventory.
Both Reuters and Yahoo Finance offer a synopsis of each report they sell, so don't worry about buying blind. For example, the synopsis for a Nov. 5 National Bank Financial report on MTS said that a recent earnings report from the company "should give investors more comfort that the attractive 6-per-cent dividend yield is safe and that further share buybacks are coming."
The price for the full version of the National Bank report is $30, which seems a bit pricey. If your interest in MTS was specifically related to the dividend, perhaps the synopsis alone would suffice.
The divergence of opinion on MTS suggests you'd do well not to rely on the opinion of just one analyst. This is where the consensus analyst ratings contained in Globeinvestor.com's estimate snapshots come in. They aggregate multiple ratings into a numerical rating on a scale of one, which is best, to five. MTS's consensus rating on Globeinvestor is 3.0, which translates to a "hold."
Another way to get a broader view of how analysts see a stock is to check the daily upgrades and downgrades listing on the Briefing.com website. U.S. stocks are the focus here, but the inclusion of RBC Dominion and CIBC World Markets in the database ensures that Canadian equities are also mentioned.
More day-by-day ratings changes can be found on the BayStreet.ca website. Go to the "Analyst Ratings" area, choose a dealer from the pull-down menu and you can look at a list of ratings going back several months. There's a scattering of Canadian firms represented here and, while they have pronounced on many big and small Canadian stocks, none of them have looked at MTS.
That's no big deal because we've already accumulated enough analyst opinions to get an idea of where MTS stands as a possible buy for dividend-focused investors. It looks like investors will be able to collect their 5.4 per cent for the next few years at least, but the prospects for dividend increases and share price growth seem limited.
Me, I'll take a lower-yielding stock that regularly increases its dividend. For more information on that, go to Globeinvestor.com's Smart Money area and look at the article from Nov. 6.
Tips on using analysis
1. Focus on the analysis, not the rating. It's nice to see a "strong buy" on a stock you're looking at, but the supporting arguments are much more important.
2. Make an exception for "sell" recommendations. They're so rare they have to be considered seriously.
3. Get a second opinion. Ideally, you want a consensus view on a stock, not one individual's opinion alone.
4. Consider the bias. Reports typically disclose that an analyst's firm has or may be seeking a business relationship with the company being covered -- consider this a serious warning, not just boilerplate.
5. Check the share price. Positive reports can lift a stock's price so that it's no longer the attractive buy it was when the analysis was written.
© The Globe and Mail
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