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BCE Inc.: Why Dividend Investors Should Buy the Stock Now

Canada’s largest telecom and media company has been a big winner for stockholders in the past five years. In fact, the ticker is up 75% in that time frame.

But the shares of BCE Inc. (TSX:BCE)(NYSE:BCE) have been in a downward trend for the past three months and investors are wondering if this is a good time to buy.

Let’s take a look at the reasons why the stock is under pressure.

CRTC impact

Changes announced by the CRTC have some investors worried about future earnings growth and that has caused the stock to pull back nearly 10% from the highs it hit in early February.

This summer, all three-year wireless contracts will disappear and providers like BCE are scrambling to lock in customers under new agreements. In order to do so the companies are offering incentives and this could hit margins in the short term.

The market is also concerned about future TV revenues.

Next March Canadians will have the option to buy a basic TV package for $25 per month and then pay for the additional channels they want to receive on a one-by-one basis. Subscribers love the idea, but cable and satellite companies that own media assets are not very happy.

The content owners argue that high-cost bundles are necessary to spread out the expenses associated with producing the shows and programs. The new plan could also threaten advertising and product placement fees, as brand owners are keen to have their products reach as many targeted viewers as possible.

Selling ads might be difficult if the media companies can’t guarantee the number of subscribers the shows will potentially reach.

Earnings

BCE announced solid Q1 2015 earnings. The wireless division delivered a 9.7% increase in operating revenues compared with the same period last year. Wireless data revenues jumped 24.4% and now represent more than half of total wireless service revenues.

The company is also selling more phones at higher prices, as product revenues increased by 35.1%.

Blended average revenue per unit rose 5.3% to $60.63. The increase is partly attributable to a higher numbers of customers on new two-year contracts.

On the wireline side, BCE continues to see strength in its Internet and TV businesses. Total residential customer net additions reached 7,000, compared with a loss of 21,000 the previous year.

Guidance

BCE knew all the current issues were in the works back in February when it gave its guidance for the year. The company even raised the dividend by more than 5%. Expected free cash flow growth for the year is 8-15% and guidance for 2015 was just confirmed when BCE reported its Q1 results.

Should you buy?

As a long-term bet, BCE is a solid dividend pick. The company has limited competition and is seeing strong subscriber growth in its wireless, Internet, and TV offerings. The company will make the necessary adjustments to accommodate the new TV rules, but the key thing to remember is that it will be pick-and-PAY, not pick-and-free. The best content might actually bring in more revenue under the new system.

At this point, the 4.9% yield is safe and investors should see continued annual increases to the payout. I think the recent weakness in the stock presents a good buying opportunity for investors who want a stable holding to anchor their dividend portfolios.

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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 Andrew Walker has no position in any stocks mentioned.

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