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Is BCE Inc. Still a Safe Dividend Bet?

BCE Inc. (TSX:BCE)(NYSE:BCE) pays one of the best dividends on the S&P/TSX 60, but recent developments in the Canadian media and communications sector have some pundits concerned about revenue growth.

Let’s take a look at the current situation to see if BCE deserves to be in your income portfolio.

Media assets under fire

Over the past several years BCE has invested heavily in media assets through its purchase of radio stations, sports franchises, specialty channels, and the CTV television network.

This is all part of a plan to provide customers with end-to-end products and services in the ever-changing media and communications market. So far, the company has done a great job.

If you are in Canada and using a TV or digital device to watch a game, movie, video, or specialty channel, to check your email, download music, read the news, text your friends, or listen to the business updates, BCE is probably providing part or all of the services. In fact, you might even have bought the phone, tablet, or laptop at one of BCE’s retail outlets.

Recently, though, betting big on media assets is looking a bit risky. The CRTC just announced new rules for cable, fibre, and satellite subscription TV services. Beginning in 2016, companies will be obligated to offer a basic $25 per month package and then let customers pick the extra channels on a pick-and-pay basis.

Canadians have complained for years that they are forced to pay for channels they never watch. The companies offering the services say the bundling is needed to ensure enough revenue can be generated to produce the programs.

With the new rules, local and educational stations will make up the bulk of the basic bundle, but a number of other specialty and news programs will be left out. For example, BCE’s CTV news channel won’t be included.

At the same time, new competition is entering the market. Bloomberg is launching a new Canadian business channel that will go head-to-head with BCE’s popular BNN offering.

Should dividend investors worry?

BCE is a well-run company and the latest changes in the media landscape are not only manageable, but they have also been expected for some time.

The company will have to make adjustments, but the media group still represents a small part of BCE’s overall revenues. In Q4 2014, BCE had revenues of $4.94 billion, and Bell Media contributed $789 million, or roughly 16% of the total.

The Canadian market is still controlled by three major players and that situation is unlikely to change anytime soon. Next year subscribers will have more say in the channels they receive, but the extra picks certainly won’t be free.

BCE just increased the dividend by 5.3% to $2.60 per share. It was the 11th increase in the past six years. The company said the payout remains within its target range of 65-75% of free cash flow and that the increase is supported by a strong business outlook.

BCE’s shares are not cheap, but the 4.8% yield helps justify the price you have to pay for the stock. There aren’t many choices out there for income investors and this one is still one of the safest available.

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

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