Does an Attractive Yield Make BCE Inc. a Buy?

BCE Inc. (TSX:BCE)(NYSE:BCE) has experienced a significant pullback, presenting a unique opportunity to get more 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

Shares of BCE Inc. (TSX:BCE)(NYSE:BCE) are down 12.5% since December, which has created an opportunity for a boosted yield. For investors that have been sitting on the sidelines, the 5.5% yield is attractive.

When a solid income stock starts to dip in price, the yield increases. For example, BCE currently pays $0.775 per share, per quarter. Assume shares were trading at December prices today ($62.80). You’d have to spend $628 to get 10 shares, which would get you $7.75 per quarter in dividends.

But let’s say you had that $628 to buy shares today at $54.77. That gets you nearly 11.5 shares. That gets you $8.91 in dividends — an additional $1 more per quarter. When you’re talking about 10 shares, it doesn’t seem like a lot. But imagine if you were investing tens of thousands. It adds up.

But why are shares at BCE dropping to begin with?

A big reason is that interest rates are increasing, which is a double whammy for the company. On the one hand, the company is carrying significant debt, so as interest rates increase, the amount it pays in financing costs also increase.

But another reason has to do with investment strategies. When interest rates were incredibly low, the only place to get income was to invest in dividend stocks like BCE. With rates increasing, conservative investors can move their money into other potentially safer investments. So, they sell BCE, putting downward pressure on the company.

BCE is one of Canada’s top dividend stocks. And there’s two primary reasons I say this: the economic moat and the addictive product it sells.

I don’t know about you, but I’m on my phone all the time. My need to constantly be connected is what companies like BCE offer. And the fact that BCE controls every step of the connection and, in many respects, the content gives it tremendous power.

For example, because BCE owns 37.5% of Maple Leaf Sports & Entertainment, it benefits when Toronto Raptors games are occurring. BCE also makes money by selling a cable subscription, so I can watch the game on a TV station that BCE owns. BCE is making money on the advertisements. And then if I am tweeting about the game, it’s making money on the mobile plan or the WiFi I bought.

This moat makes earnings incredibly predictable, which is one reason BCE is such a great income stock. In the fourth quarter, adjusted net earnings were $684 million, up from $667 million a year ago. And the full-year results improved 0.8% to $3.03 billion. Customers continue to buy the addictive product BCE sells.

When the market is rocky, it can sometimes feel scary putting money into a company. But when a stock like BCE, which pays an amazing dividend, starts to drop, it creates an opportunity to increase your income. With the same purchasing power, you can accumulate more shares, which can compound over the years.

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 of the stocks mentioned.

More on Dividend Stocks

money cash dividends
Dividend Stocks

2 Passive-Income ETFs to Buy in 2022

Unlike stocks, distribution-focused ETFs may not offer an equally healthy capital-appreciation potential, but they might still be worth buying.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Investors: 2 Top Total-Return Stocks to Build Retirement Wealth

These top TSX dividend stocks offer high yields and currently trade at discounted prices.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

The 3 Best TSX Dividend Stocks That Pay Cash Monthly

Looking to earn monthly passive income from top dividend stocks? Here are three fresh ideas for July 2022.

Read more »

Cogs turning against each other
Dividend Stocks

2 Resilient Value Stocks That Could Weather the Storm

The resilient businesses of two value stocks can help you endure recessionary pressures and deliver superior returns in 2022.

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: Fortify Your Portfolio by Building a 2nd Pension

One of the best ways to utilize your retirement savings without depleting them is to invest them in dividend stocks.…

Read more »

Value for money
Dividend Stocks

Value Investors: These 3 TSX Stocks Are a Steal in July 2022

Shopping for undervalued stocks in July? Start your research with Canadian Tire (TSX:CTC.A) and two others.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Market Correction: 1 Future Dividend King to Buy Today

Restaurant Brands International (TSX:QSR)(NYSE:QSR) stock seems way too cheap to ignore, as the defensive dividend play sags alongside the TSX.

Read more »

money cash dividends
Dividend Stocks

Got $500? Create Passive Income of $5,000 Today!

Even if you can only afford $500, you can use it to create $5,000 in passive income by remaining consistent…

Read more »