BCE Inc. (TSX:BCE)(NYSE:BCE) has long been a favourite among income investors, and the company continues to be one of the safest stocks retirees can own.
Here’s why.
1. Minimal competition
Canada’s largest media and telecom business holds a leadership position in a market with huge barriers to entry and limited competition. That’s the kind of situation income investors should be looking for when deciding where to place their money.
Once in a while the market gets concerned that a large international carrier could enter Canada. The government tells voters it would like to see this happen, but the reality is that Canada is not all that appealing.
Why?
We live in a very big country with a relatively small population. That means a new competitor would have to spend billions of dollars to build a nationwide network and then operate at a loss for several years in an effort to steal enough market share away from the incumbents to build a sustainable business.
The spoils just aren’t worth the effort or the risks.
A homegrown competitor might emerge, but consumers probably wouldn’t see much of a break in pricing.
2. Well-entrenched position
BCE is no longer a boring old telephone company. In fact, the BCE of today is a major media and telecom powerhouse. Through a series of well-planned acquisitions, BCE now dominates key sectors of the Canadian media and communications value chain.
It owns sports franchises, radio stations, a television network, specialty channels, online properties, and retail outlets.
All of these assets are combined with BCE’s world-class wireless and wireline network infrastructure to form a powerful business that is unmatched in the industry.
The company is so well entrenched in the media and telecom sector that most Canadians put a bit of money in the pockets of BCE’s shareholders every day. Think about it. If you buy a phone, send a text, check your e-mail, watch a game, listen to the radio, or download a movie, there is a pretty good chance that you used one of BCE’s products or services.
3. Investments in growth
BCE knows it has to invest to stay on top and that’s why it plans to spend $20 billion over the next five years to expand its broadband fibre and wireless networks.
Not many companies have the cash or the expertise to do that, and the investments should ensure BCE’s investors will see strong results for years to come.
4. Cash machine
BCE is a cash machine. The company recently reported a solid 8% year-over-year gain in Q2 free cash flow and adjusted earnings per share increased by a steady 5%. Getting all the moving parts to work in harmony takes some time, but BCE is doing a good job and shareholders are reaping the benefits.
5. Strong dividend
Income investors want distributions that are not only safe, but increase on a predictable basis. BCE pays a dividend of $2.60 per share that yields 4.9%. The company has a strong track record of raising the distribution, and that trend should continue given the steady growth in free cash flow.
Should you buy BCE?
There are very few stocks retirees can invest in to get decent yield without taking on too much risk. BCE is one of them.
