Income Investors: Should You Buy BCE Inc. for the 5% Yield?

BCE Inc. (TSX:BCE)(NYSE:BCE) has pulled back to the point where it now offers a 5% yield. Is this the time to buy?

| More on:
The Motley Fool

BCE Inc. (TSX:BCE)(NYSE:BCE) has pulled back to the point where the dividend now yields an attractive 5%.

Let’s take a look at the communications giant to see if it should be in your portfolio.

Wide moat

BCE is already a dominant force in the Canadian communications sector, but the business is about to become even stronger.

Why?

The company just received final approvals for its purchase of Manitoba Telecom Services (MTS). Once the deal closes, BCE will vault to the top spot in Manitoba and have a strong base in central Canada to expand its presence in the western provinces.

The MTS purchase is just one of a number of acquisitions BCE has made over the past several years with deals spread out across the telecom, media, and retail sectors, including sports teams, a television network, specialty channels, radio stations, equipment vendors, and an ad agency.

BCE also bought the remaining positions it didn’t already own in Bell Aliant and Q9 Networks.

When you combine all of these assets with the world-class mobile and wireline infrastructure, you get a business that interacts with most Canadians on a weekly, if not daily, basis.

In fact, anytime someone in this country sends a text, calls a friend, streams a movie, listens to the news, watches the weather report, or checks e-mail, the odds are pretty good that BCE is involved in the process somewhere along the line.

If you are looking for a business with a wide moat, this is one of the top picks.

Solid dividend

BCE recently raised its dividend based on expected free cash flow growth that doesn’t include accretion from MTS. The current quarterly dividend of $0.7175 provides a yield of 5%.

The company has a strong track record of dividend growth, and the distribution should be very safe.

Risks

The stock has pulled back amid concerns of rising interest rates in the United States.

Telecom companies tend to carry a lot of debt, so higher rates can increase their cost of borrowing. Rising interest rates can also close the gap between zero-risk yields and dividend yields, which can potentially cause a shift out of dividend stocks.

In addition, BCE trades at a multiple that is above its long-term averages, so there is a risk the stock could revert to historic norms.

Should you buy?

Value investors should probably look for other opportunities, but income investors who simply want a reliable name to buy and sit on for the long-term might want to consider adding BCE on any further weakness.

The stock has already pulled back enough that further downside should be limited by the attractive dividend yield, and there is a chance the market is getting ahead of itself on the interest rate fears.

A safer 5% yield is tough to find in the Canadian market today, and BCE tends to weather market downturns better than the broader index.

In an uncertain environment, such as the one we face today, BCE remains an attractive income pick.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »