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Growth & Income

Investors looking for a stable dividend stock may want to check out Shaw Communications Inc. (SJR - Analyst Report). The Canadian telecom produces steady free cash flow and yields a hefty 4.2%.

The company expects 2011 to be another year of solid growth and analysts have been revising their estimates higher. The stock also trades at a discount to its peers.

Fourth Quarter Results

Shaw reported its results for the fourth quarter of 2010 in late October. Total revenue was up 7.6% year-over-year. Service revenue from cable increased 8.6% driven by customer growth and rate increases. Service revenue from satellite was up 3.7% over the same period

Meanwhile, total operating income improved 5.5% as the operating margin declined from 27.1% to 26.6%.

Earnings per share came in at 30 cents, missing the Zacks Consensus Estimate by 3 cents.

Outlook

Shaw expects to see continued growth in both its cable and satellite divisions in 2011. Earnings estimates have moved higher over the last couple of months despite the earnings miss.

The Zacks Consensus Estimate for 2011 is $1.47, equating to a 7% increase over 2010 EPS. The 2012 estimate is $1.56, representing 6% EPS growth. It is a Zacks #2 Rank (Buy) stock.

Fundamentals

Shaw produces strong and stable cash flows and expects free cash flow of $550 million in fiscal year 2011. It has a hefty dividend yield of 4.2%, and its payout ratio of 65% is comparable to its peers.

Canadian telecom TELUS Corp (TU), for instance, has a dividend yield of 4.8% and a payout ratio of 67%. Rogers Communications (RCI), another Canadian telecom, has a dividend yield of 3.8% and a payout ratio of 44%.

Shaw trades at 14.3x forward earnings, a discount to the industry average of 17.6x. Its return on equity of 22.8% trumps the peer group average of 8.1%.

The stock has essentially been flat year-to-date:

SJR: Shaw Communications Inc.

Shaw Communications Inc. is headquartered in Calgary, Alberta, Canada and has a market cap of $8.7 billion. It serves 3.4 million customers, including 1.8 million Internet and over 1.0 million digital phone customers.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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