Can BCE Inc. Go Any Higher?

If BCE Inc. (TSX:BCE)(NYSE:BCE) can continue making smart acquisitions and increasing the dividend, the price of the stock will rise because people have nowhere else to go for income.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since the middle of June BCE Inc. (TSX:BCE)(NYSE:BCE) has been on a bit of a tear, rising from $58.53 to the present value just above $63 a share. For a company that tends to operate as a slow-and-steady type of investment, this appreciation has some investors asking how much higher it can go.

It’s important to understand that this stock is expensive. We’re talking about a price-to-earnings ratio of 19.92, which is multiples above its five-year average. But just because the stock is incredibly expensive doesn’t mean that it can’t go higher. We need more information.

BCE is a telecommunications conglomerate that runs its cable, internet, wireless, and wireline business, but it also runs a network of media properties and has stakes in the Toronto Raptors and the Montreal Canadiens. By being diversified, it is able to generate consistent revenue. Consider that a person might buy a cable package, watch a Raptors game on TV, and then decide to go to the next game. All three of those instances put money in BCE’s pocket.

And earnings are strong. Its Q1 2016 earnings were $0.85 per share, which was a small improvement year over year. This was driven in part by a 1.6% increase to 8.24 million customers in its wireless division. Along with its average revenue per user growing by 3.6% to $63.02, the company was able to push revenue up 5.3% to $1.58 billion.

Internet subscriptions increased by 3.4% to 3.41 million. TV subscriptions improved by 3.4% to 2.75 million. People want what BCE is selling.

So that’s a good sign and should help push the price higher, right?

Unfortunately, that alone isn’t enough. While its earnings did grow, they didn’t grow significantly. And without significant growth, I don’t see how BCE is going to be able to increase the price of its shares substantially. Fortunately, BCE is smarter than me and has a plan.

It is currently attempting to acquire Manitoba Telecom Services Inc. for $3.9 billion. MTS owns 50% of the wireless market in Manitoba. Rogers owns 30%, Telus owns 10%, and BCE has the last 10%. By acquiring MTS, BCE will be able to increase its holding in the space substantially. And despite BCE having to sell a third of those subscribers to Telus, I expect BCE to increase its subscriber base as it invests in the area.

So that should help the price somewhat. However, here’s the real reason why the price could appreciate.

BCE is one of the top dividend stocks in the market today. Period. End of story. And it kicks off $0.68 per share per quarter, which is a strong and consistent 4.33% yield. What’s good for BCE is that this dividend falls within its targeted 65-75% payout ratio. And with management expecting free cash flow to grow anywhere from 4% to 12%, that dividend should go higher.

And that’s the secret to the price increasing. In the past investors would go to bonds for safe income, passing up on significant capital gains for certainty. With interest rates so low, these investors have had to move to assets like dividend stocks. BCE is one of those companies; therefore, as cash flow increases and the dividend rises, more investors will buy BCE for that safe and secure dividend.

I don’t see BCE increasing too much because of its organic growth; however, with a couple of smart acquisitions and the fact that it distributes so much of its cash flow in dividends, the price could rise simply because there’s no other option.

Should you invest $1,000 in BCE right now?

Before you buy stock in BCE, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and BCE wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Jacob Donnelly has no position in any stocks mentioned. The Motley Fool owns shares of ROGERS COMMUNICATIONS INC. CL B NV. Rogers Communications is a recommendation of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Dip Buyers Could Win Big in Today’s Market Dip

If you want to buy the dip, think long-term. Which is why this TSX stock is a top option.

Read more »