Is BCE Inc. Canada’s Best Dividend Stock?

Here’s why BCE Inc. (TSX:BCE)(NYSE:BCE) is going to make dividend investors very happy this year.

| More on:

Shares of BCE Inc. (TSX:BCE)(NYSE:BCE) are hitting new highs on a regular basis and investors are wondering if this dividend king is going to continue to run higher.

Let’s take a look at the situation right now to see if you should add BCE Inc. to your portfolio.

Interest rates

The recent rate cut by the Bank of Canada means the period of low interest rates is set to continue for quite a while. In fact, many analysts now believe the government’s next move will be another cut. This is great news for the dividend stocks that are considered to be the safest alternatives to bonds.

BCE is one of the market’s favourites because it has predictable earnings and a large dividend payout. The stock should continue to benefit from yield-hungry investors who are afraid of putting their money in other sectors of the market.

Rotation

One beef investors have with the Canadian market is the lack of variety. Energy and financial companies account for as much as 60% of the TSX Composite Index. These two sectors have historically been very popular with dividend investors, but carnage in the oil patch and weak bank earnings have driven cash out of these groups and into the few remaining safe spots.

BCE is one of the best safe-haven choices and that trend is likely to continue in the medium term given the headwinds facing the banks and the continued volatility in energy markets.

Competitive advantage

The world’s top investors always look for stocks with a wide moat around the business. In the case of BCE, it is the company’s state-of-the-art network. Competition chatter resurfaces every once in a while when the government decides it needs some sympathy from the electorate. The likelihood that a fourth national carrier will enter the Canadian market is quite low. For large international players, the market is simply not attractive enough to go through the expense and headaches it would take to build a competitive business in Canada.

This might not be good news for consumers, but it is great news for investors in shares of BCE.

The company continues to expand its dominance in the communications space through media, retail, and telecom acquisitions. In the past two years BCE bought wireless retailer Glentel, took its Bell Aliant subsidiary private, and acquired Astral Media.

Dividend growth

BCE pays a dividend of $2.48 per share that currently yields about 4.2%. The company does not have the fastest dividend growth in the country, but is does raise the payout on a consistent basis. This trend should continue as cash flow from the recently acquired assets continues to fill the coffers.

Should you buy?

BCE is currently trading at almost 20 times earnings, which is at the high end of its historic range. This makes the stock vulnerable to a sharp pullback if interest rates reverse directions. With rates expected to stay at current levels, or fall further, the market should continue to reward BCE with a high multiple.

There is a lot of money chasing yield in a small number of stocks right now and that trend should remain in place until the market feels confident that energy and financial stocks are going to head higher. For the moment, BCE is probably a good choice for conservative dividend investors.

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

data analyze research
Dividend Stocks

TFSA: Invest $29,000 in These 3 Stocks and Earn $515 Each Month in Passive Income in 2023

The benefits of the TFSA can be leveraged to hold a basket of dividend stocks and generate a stream of…

Read more »

woman data analyze
Dividend Stocks

2 Stocks to Buy and Then Never Sell

Conservative investors who seek capital protection and long-term price appreciation should dig deeper into CNR and IFC stocks.

Read more »

Retirement plan
Dividend Stocks

TFSA Investors: 3 Stocks for Building Your Tax-Free Retirement Income Stream

If you start building your retirement income stream now (within your TFSA), you can grow it to massive proportions by…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Dividend Traps: These 8% Dividend Stocks Are Riskier Than They Look

High yield dividend stocks like Slate Retail REIT (TSX:SGR.U) are better-positioned.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

TFSA Investors: If You Like Dividends, You Should Love These 3 Stocks

Are you looking for some great income stocks to add to your TFSA? If you like dividends, you will love…

Read more »

Dividend Stocks

These 2 High-Yielding Dividend Stocks are Near Their 52-Week Lows

These dividend stocks offer yields far higher than we've seen in recent years, giving you practically double the dividend income.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

How to: Defensive Stock Investing for Today’s Market

Don't like butterflies in your stomach? Then pick up some defensive dividend stocks on dips at good valuations.

Read more »

consider the options
Dividend Stocks

Better Buy: Royal Bank Stock or BCE Stock?

Top TSX dividend stocks still look attractive after the recent bounce.

Read more »