BCE Inc. (TSX:BCE)(NYSE:BCE) has dropped nearly 10% in the past three months, and investors who missed the rally earlier in the year are looking at the juicy yield and wondering if this is the right time to buy.
Let’s take a look at Canada’s communications giant to see if it deserves to be in your portfolio.
Earnings
BCE reported steady Q3 2016 results.
Operating revenue rose 1.2% compared with the same period last year. Cash flow from operating activities increased 3.5%, and the company generated a 1.1% gain in net earnings.
The numbers didn’t shoot the lights out, but the company continues to make gains in its core operations, adding 135,000 net new wireless, Internet, and TV subscribers.
Wireless operating revenue jumped 4.3% as smartphone users continue to consumer more data. Service revenue rose 5.7%, offsetting an 11.2% slide in product revenue due to competitive pressure and generous promotions.
BCE’s wireless customers continue to spend more on a monthly basis. The blended average revenue per user (ARPU) rose 3.7% to $67.76.
The media group has expanded significantly in recent years, and BCE continues to drive efficiency into the division as it moves to get the various pieces working together in a way that maximizes revenue across all platforms.
The media assets include sports teams, a television network, specialty channels, and radio stations. Revenue rose 3.5% in the group compared with last year, so the company is making headway despite a challenging advertising market.
Strong contributions came from the Crave TV streaming service, which topped one million users, and the company’s decision to expand The Movie Network into a national pay TV service.
The giant grows
BCE recently bought out its partners in Q9 Networks, which is a data centre operator providing outsourced hosting services to government and corporate clients.
The company is also making progress on its acquisition of Manitoba Telecom Services.
Dividends
BCE is one of Canada’s top dividend stocks and holds an anchor position in many portfolios. Investors have been hesitant to buy this year due to the lofty multiple, and anyone who follows the company knows the stock doesn’t often go on sale.
In recent days the stock has extended its slide, and the current quarterly payout of $0.6825 per share now provides a yield of 4.75%. Investors should see the distribution continue to rise in step with free cash flow growth.
Should you buy?
Dividend stocks are being sold in response to a mini-meltdown in global bond markets. As bond prices fall, yields increase, making dividend stocks less attractive.
Further weakness in BCE might continue in the near term, but the generous yield should limit the extent of the pullback. If you are a buy-and-hold investor searching for reliable yield close to 5%, BCE looks pretty good at the current price.
