With investors constantly looking for fresh ideas, it is sometimes much easier (and profitable) to reconsider an old idea that has been overlooked rather than trying to find the new breakout idea. Currently, shares of BCE Inc. (TSX:BCE)(NYSE:BCE) are trading near a 52-week low and seem to have a lot to offer investors.
Given the pullback in the share price by approximately 7% over the past three months, investors need to ask themselves what their investment objectives really are and what gap this security would fill in their portfolios. As this company provides customers (both personal and corporate) with wireless access and television services, the company is in an excellent position to capitalize on those who choose to pay for television services and those who opt to cut the cord and use much more data.
At the current price, shares offer investors a dividend yield of approximately 5% while only paying out 77% of earnings (for fiscal 2016). During the first quarter of 2017, the company paid out 79% of earnings in the form of dividends. Given that the company has traditionally paid a high amount of earnings as dividends, it is safe to assume that this is a security for long-term dividend-growth investors.
For fiscal 2013, the total dividends paid per share were no less than $2.33, which have increased every year to reach $2.70 in 2016. The compounded annual growth rate (CAGR) over this period of time was nothing less than 5%. Given that the beta of the company is ~0.31, it is safe to assume that this will be a low-risk proposition for investors who choose to purchase shares. As a reminder, the beta is a measure of a stocks volatility in comparison to the overall market.
For investors seeking a dividend play with the potential for minor capital appreciation, this may just be the stock that fills this gap in your portfolio.
For others who want to invest in a company without the television component, shares of competitor Telus Corporation (TSX:T)(NYSE:TU) be the best pick. The company, which is in the wireless game, currently yields more than 4.35% and carries a similar payout ratio. For fiscal 2016, the company paid out close to 82% of earnings in the form of dividends after aggressively increasing the amount paid per share.
The dividends paid in fiscal 2013, which were $1.36, increased to $1.80 for fiscal 2016. The CAGR of this dividend was nothing short of 9.8% over this period — clearly much more than BCE.
As investors have no doubt realized over time, what falls out of favour today can become next year’s “stock of the year.” In the case of these wireless companies, which are known for high dividend yields, their attractiveness declines with every quarter-point increase in the risk-free rate of return.
As rates increase, investors may want to keep these names on their watch lists.
