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3 Reasons to Buy BCE Inc. Today

BCE Inc. (TSX:BCE)(NYSE:BCE) has rewarded shareholders handsomely over the last five years and investors are wondering if a recent pullback in the stock is a good opportunity to buy.

Here are three reasons why I think BCE Inc. deserves a spot in your portfolio.

  1. Data demand

A report released by comScore Canada says Canadians are pretty much addicted to the Internet and the amount of data they consume is rising. In fact, comScore says Canada has regained the top spot in the world when it comes to being online.

The consumption of video increased by 36% compared to last year and comScore says Canadians spend an average of 36.3 hours online per month.

This is great news for BCE Inc. and its shareholders.

BCE’s decision to invest billions of dollars in state-of-the-art mobile and landline networks appears to be paying off in higher usage. In its Q4 2014 earnings statement, the company said its wireless blended average revenue per user (ARPU) was $61.14, a 5.5% increase over the same period in 2013. Wireless data revenues increased by 26% and now represent about half of wireless service revenues.

On the wireline side, the company enjoyed strong Q4 growth in broadband Internet and Fibe TV acquisitions.

BCE also owns a broad mix of media assets, including a television station, specialty channels, sports teams, radio stations, and a large portfolio of websites. The content created by the media division continues to grow and is made available for users to access via any of the popular digital platforms.

Need a new smartphone, tablet, or laptop to watch a movie or catch up on the news? No problem. BCE’s retail locations can provide that, too.

  1. Limited competition

BCE, Rogers, and Telus dominate the Canadian communications market and that situation is unlikely to change anytime soon. A homegrown competitor could emerge at some point, but consumers probably wouldn’t see much price relief.

A big foreign player is unlikely to arrive because it would have to spend a ridiculous amount of money to build a national network and try to compete for a consumer market that is relatively small by international standards.

The current dispute around fibre to the home (FTTH) is a good example of why you should invest in BCE. The big three players have been upgrading their old copper and coaxial networks to bring fibre optic technology right into people’s homes, but unlike the legacy lines, they are not sharing the new high-speed ones.

In the past, companies have been obligated to make the older lines available to competitors. Today, customers still get the option of shopping around for service on the “slow” lines that deliver broadband capability of about 50 Mbps. If they want 1,000 Mbps, they have to order the service from BCE or the other two goliaths, who will then run the new high-speed line from the road into the house.

As video demand continues to increase, people are going to want the super high-speed connections, and BCE’s shareholders should see the free cash flow keep rolling in.

  1. Dividend safety

BCE pays a dividend of $2.60 per share that yields about 4.8%. The company has increased the dividend 11 times in the past six years.

Should you buy?

BCE trades at 15.3 times forward earnings and 4.1 times book value. The stock definitely isn’t cheap, but investors have limited options for stable yield that approaches 5%. Canadian interest rates are likely to remain low for an extended period of time and that should help BCE sustain its premium valuation.

Given the state of the market, the recent pullback is probably a good opportunity to buy the stock.

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Fool contributor Andrew Walker has no position in any stocks mentioned. Rogers Communications Inc. is a recommendation of Stock Advisor Canada.

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