Here’s Why BCE Inc. Should Stay in Your Portfolio

BCE Inc. (TSX:BCE)(NYSE:BCE) remains a great long-term investment opportunity with one of the best dividends on the market.

| 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

When the Bank of Canada hiked interest rates for the second time this year, investors immediately started contemplating their investment portfolio mix for companies that would be susceptible to the increased cost of borrowing.

One of the companies that is often lumped into that crowd is BCE Inc. (TSX:BCE)(NYSE:BCE).

BCE is the largest telecom in the country and has a media empire that blankets Canada’s population without many of us even realizing it.

Interest rates are rising, but don’t sell … yet

One of the biggest concerns with rising interest rates is that the cost of borrowing becomes more expensive. Companies that have significant levels of debt could see free cash and dividends squeezed, so that debt payments remain on schedule.

This is one concern that is often cited with respect to BCE. BCE has a significant debt load — a whopping US$23.4 billion — but looking a little deeper at that debt reveals a different story.

BCE’s debt-to-equity ratio remains in a more favourable position than any of its peers, coming in at 1.25 with the closest of the Big Three telecoms coming in at 1.63. Another key point to consider is that many of BCE’s current debt obligations have fixed rates with maturities that span a decade or more.

Additionally, most, if not all, of BCE’s competitors lack the established infrastructure that BCE has and do not have a media empire on par with BCE to fall back on or augment earnings.

In other words, don’t expect the most recent rate hikes to cause panic in the BCE boardroom anytime soon. Investors can expect BCE to continue to pay that handsome dividend.

There’s still plenty of upside to BCE

BCE’s massive infrastructure, in many ways, remains the crown jewel of the company, providing a backbone for delivering the company’s core subscription services to the masses. That infrastructure also allows BCE to keep such an impressive dividend.

The current dividend, which pays out $0.72 per share, provides a very appetizing 4.85%, which far exceeds the paltry interest rate hike. BCE last raised the dividend earlier this year.

Critics of BCE often cite that the company lacks any significant growth opportunities in part due to that dividend. The recent acquisition of Manitoba Telecom Services Inc. puts that fallacy to rest. Through the completion of that deal, BCE added over 220,000 internet, 109,000 IPTV, and 477,000 wireless subscribers.

Together, those new subscribers should provide a welcome boost to earnings for the company over the next few years, and cost synergies from the deal should provide a boost as well.

Should you invest in BCE?

In my opinion, BCE is a great investment opportunity, provided you’re looking at the longer term. The current environment of interest rate hikes could see BCE experience a bit of a price pullback, but if your focus is on growing your portfolio for the long term, the added value of reinvesting BCE’s great dividend could be the deciding factor.

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 Demetris Afxentiou has no position in any stocks mentioned.

More on Dividend Stocks

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

1 Oversold REIT Stock to Buy for Safe Dividends

If you're looking for stable dividend income from an oversold stock, this office REIT is a perfect option.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

3 Cheap Canadian REITs to Buy in 2022

Are you looking for passive income? Start treasure digging in cheap Canadian REITs in this market correction!

Read more »

Dividend Stocks

TFSA Passive Income: 3 Undervalued, High-Yield TSX Dividend Stocks to Buy Now

These top TSX dividend stocks with high yields now look attractive to buy for TFSA passive income.

Read more »