BCE Inc. (TSX:BCE)(NYSE:BCE) is often times considered the best dividend-paying stock in the country. The yield is nearly 5%, it pays on time, and it has consistently increased the payout to investors. If you had owned the stock for the past five years, you would have seen a 75% increase in capital gains, all while also generating a highly lucrative dividend.
While the above sounds great, those are secondary reasons to support the fact that BCE is my favourite dividend-paying stock in all of Canada. And if you are trying to generate good income, this is a stock worth having.
It has a wide moat
When looking at a company that pays dividends, I avoid how much it pays and instead look at how hard it would be for the company to be disrupted. Like the railroads, which are another favourite of mine, BCE has a tremendously wide moat.
What this means is that it would be difficult for someone to come along and launch their own telecommunications company in Canada. Could it be done? Sure, but it’s just not very likely.
Having a wide moat gives a business a kind of monopoly. While they are not very good for consumers, as investors, monopolies ensure that revenues stay high, margins are great, and the companies are able to continue growing.
It rewards investors
The more money that a company pays out in dividends to its investors, the less it will have to reinvest in the business. What makes BCE a smart company is that they are generous with their dividends without putting the business in harm’s way.
Its plan is to pay out anywhere from 65-75% of free cash flow. This ensures that there is still money in the bank to continue growing the company. Because of this, it is able to pay a 4.86% yield. I don’t know about you, but I think that’s just sweet.
It’s easy to get trapped in the dividend-greed trick. The yield is really high, but then the payout ratio is unsustainable. I have even seen some Canadian companies that are touted as “amazing dividends” that have a payout ratio of 240%.
There is some growth
BCE is not a growth stock and you shouldn’t treat it like such. On top of that, it is actually a little overvalued. However, the stock has been dropping in price for the past few months, so it has come down from much higher highs.
That being said, the company does continue to add subscribers to its wireless, landline, and cable departments. The growth is not great, but if there were none, I would have concerns about the viability of the company.
All told, BCE is my favourite dividend. It pays the majority of its earnings to investors without putting the company in economic hardship. It has a very wide moat that makes it hard to disrupt. And it is adding subscribers to its different business sectors. Adding this company to your portfolio would definitely result in a strong return.
