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3 Reasons BCE Belongs In Your Portfolio

If investors are looking for steady cash flow, a terrific brand, strong competitive advantages, and even some potential for growth, they needn’t look farther than to their television or mobile phone, which is probably powered by Bell Canada Enterprises (TSX:BCE)(NYSE:BCE). Bell supplies Canadian consumers with wireless, home phone, internet, and television service. The company also has a significant media content business, owning such brands as CTV, TSN, BNN, Much Music, and The Globe and Mail. It also owns a chunk of Canada’s most popular hockey team, the Toronto Maple Leafs. No other company in Canada can match BCE’s presence in telecom services with their impressive media portfolio.

BCE is a terrific choice for a core position in your portfolio. 2013 revenue was up 2.6% and EBITDA was up 3.4%, both decent feats considering BCE is such a behemoth and the general tepidness of the Canadian economy. The company has also upgraded their wireless network significantly, putting itself in the position to capitalize on those of us who can’t get enough of our smartphones.

Here are 3 more reasons BCE should find itself in your portfolio.

1. Media potential

Two divisions have been the main growth drivers for the company since 2008, wireless and media. Investors can’t really expect much in growth in wireless going forward, but there’s still plenty of potential in media.

Like rival Rogers Communications (TSX:RCI.B)(NYSE:RCI), BCE is investing heavily in growing their media division. Both companies teamed up to buy Maple Leaf Sports and Entertainment, the parent company of Toronto sports teams the Maple Leafs, Raptors, and Toronto FC. By buying those teams, both Rogers and BCE not only get to participate in the success of the team, but they also get free content for their sports channels.

BCE takes this a step further, allowing wireless subscribers to exclusively access their cross-owned channels via their mobile devices. While this doesn’t directly get the company any additional revenue, it does give customers incentive to bundle all of their services with Bell.

Owning multiple stations also helps television service profitability, since company owned television channels can be broadcast without royalties across Bell’s Fibe TV service and their satellite TV.

2. That juicy dividend

The stock currently yields a robust 5.15%, one of the highest yields in Canada. The company currently pays out $2.48 per year, while earning an adjusted $2.99 per share in 2013. The payout ratio is solid, considering the company’s utility status. Dividend growth is great too, as the quarterly payout rose 68% from 2008 to 2013, with 10 separate dividend hikes. Investors can look forward to potentially 2 more dividend increases in 2014, as earnings are projected to come in between $3.10 and $3.20 per share.

BCE’s dividend growth is even more impressive when you compare it to its peers. In the same period, Telus (TSX:T)(NYSE:TU) increased its dividend by 50% and Rogers saw its dividend increase 51%. It’s good to be Canada’s telecom leader.

3. Potential Bell Aliant acquisition 

Bell Aliant (TSX:BA) is essentially a miniature version of BCE, operating exclusively in the maritimes. Bell Aliant doesn’t boast a whole lot of top line growth, but it more than makes up for it in predictable income. The stock currently yields 7.5%, the company has a dominant position in their market, and is a cash flow machine.

BCE owns 44% of Bell Aliant, and the time may come when the company decides to bring the rest of it in house. This will add another $1.4 billion in revenue and another $400 million in EBITDA to the company’s already impressive results. Nobody can guess exactly when this will happen, but it’s likely only a matter of time. The synergies make too much sense.

Foolish bottom line

I look at BCE as if it’s two separate companies. One is a steady utility, providing wireless, internet, home phone, and television services to most of Canada. It’s a business that should grow slightly faster than inflation. There’s also a media division attached, which is growing nicely and compliments the other business really well. There will be opportunities for the media business to grow by acquisition in the future. And the potential of buying the rest of Bell Aliant is just icing on the cake.

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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 Nelson Smith has no positions in any stock mentioned in this article. The Motley Fool does not own any of the companies mentioned in this report.

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