Canadian Telecom Stocks Are on Sale: Get a Dividend Yield of up to 6%

Looking for safe income at a good price? Consider the largest Canadian telecom stocks for yields of up to 6%.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Canada’s telecom sector is dominated by three key players, including BCE (TSX:BCE)(NYSE:BCE) and TELUS (TSX:T)(NYSE:TU), which offer safe dividends.

The stock market crash has brought down their valuations, making them more attractive investments for income and total returns.

BCE stock

Despite being in a bear market, BCE stock is doing quite well. The stock fell almost 22% from the recent high to a recent low. From the low of $50 per share, it has made a strong bounce of 10% to about $55. This indicates that money is coming in to scoop up Canada’s largest telecom at a decent price and high yield.

It trades at a price-to-earnings ratio of about 15.6, while the stock has traded at the 18 times earnings multiple times over the last six years.

BCE Dividend Yield Chart

BCE Dividend Yield data by YCharts. The chart shows the 10-year yield history of BCE stock.

Today, investors can lock in a juicy yield of 6% that’s protected by strong free cash flow generation. BCE stock’s 2019 free cash flow payout ratio was 75%. That isn’t going to change drastically this year or next.

BCE stock has increased its dividend for 11 consecutive years with a five-year dividend-growth rate of 5.1%. Based on its strong free cash flow generation, the telecom stock can continue increasing its dividend at a 5% clip.

TELUS stock

Similar to BCE stock, TELUS stock is also faring quite well. The telecom stock fell almost 30% from the recent high to a recent low. However, from the low of $38 per share, it has rallied 14% to $43 and change per share. This indicates that money is coming in to buy this Big Three Canadian telecom stock at a cheap price and high yield.

It trades at a price-to-earnings ratio of about 15.1, while the stock has traded in the 17 times earnings range multiple times over the last few years.

T Dividend Yield Chart

Telus Dividend Yield data by YCharts. The chart shows the 10-year yield history of Telus stock.

Currently, investors can start with a nice yield of 5.4% that’s protected by earnings. Telus stock’s 2019 payout ratio was 78%. That isn’t going to change much this year.

Telus stock has increased its dividend for 16 consecutive years with a five-year dividend-growth rate of 8.2%. Based on its growth profile, the telecom stock will likely increase its dividend by about 6-7% per year over the next few years.

Therefore, Telus offers slightly better growth prospects.

A bear market: Does it make a difference?

Since we’re in a bear market, even defensive stocks like BCE and Telus will be extra volatile. They’d be safer investments if investors can view them as long-term, stable businesses that generate safe dividends for investors’ portfolios.

Consider systematically averaging into the stocks to override any emotions that might get into the way.

Focus on the safe dividends

Once you buy the stock, focus on the dividends that they bring. For example, investing $5,000 in BCE stock now will generate passive income of about $300 per year or $75 every three months.

The same amount of investment in Telus stock will generate passive income of about $270 a year or $67.50 per quarter.

Remember that’s just the income for the first year. Future dividend increases should allow you to enjoy the passive income that grows faster than inflation to more than maintain your purchasing power.

There are more quality dividend stocks for you to choose from in this bear market.

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 Kay Ng has no position in any of the 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 »