BCE Inc. (TSX:BCE)(NYSE:BCE) is one of the few stocks Canadian investors can simply buy and forget about for decades.
Here’s why.
1. Limited competition
BCE holds a dominant position in an industry with limited competition and huge barriers to entry for newcomers. That might not please consumers, but it is a fantastic situation for investors.
Once in a while, rumours emerge that a large foreign operator could descend upon the Canadian telecommunications sector and wipe out the comfortable margins enjoyed by the existing players. The previous Canadian government tried to make this happen, but no international company stepped up to the plate.
Why?
Canada is a relatively small consumer market by international standards, and the country itself is massive.
That isn’t a very attractive mix for a new entrant that would have to spend billions to build the required national wireless and wireline network infrastructure and then engage in an extended price war with the incumbents to win over enough customers to create a viable business.
The costs are too high and the potential rewards are simply too small. As a result, the status quo is likely to remain intact.
2. Integrated business model
Through a series of strategic acquisitions, BCE has positioned itself to dominate the the Canadian media and telecommunications market all along the value chain.
The company owns sports franchises, a television network, specialty channels, radio stations, retail stores, an advertising agency, and a portfolio of popular websites.
When combined with the company’s state-of-the-art wireline and wireless network, these assets form a formidable business. In fact, BCE is so well entrenched that most Canadians have contact with one or more of the company’s products or services every day.
If you send a text, listen to the weather report, download a movie, watch a Leaf’s game, or check your e-mail, the odds are pretty good that BCE is involved in the activity somewhere along the line. That’s a powerful situation for a company to be in, and one that is difficult to beat once it is in place.
3. Dividend growth
BCE hit all of its 2015 financial goals and continues to pump out significant free cash flow.
In fact, free cash flow in Q4 2015 hit $916 million, up 10% from the same period in 2014. For all of 2015, BCE reported free cash flow of $3 billion, up 9.3% from the previous year.
This is important for dividend investors because the distribution growth should be supported by growth in free cash flow.
BCE currently pays a quarterly distribution of $0.6825 per share that yields about 4.7%. The 2015 payout ratio was 72.3%, well within its 65-75% guidance range.
4. Low volatility
BCE is a very stable name to hold in uncertain economic times. The stock has actually gained 7% in the past 12 months compared to a 15% loss for the S&P TSX Composite index over the same time frame.
