The market pullback in telecom, utility, and energy infrastructure stocks is providing dividend investors with opportunities to buy some of Canada’s top companies at reasonable prices.
Let’s take a look at BCE Inc. (TSX:BCE)(NYSE:BCE) to see if it deserves to be in your portfolio today.
Growth
BCE is a giant in the Canadian communications market, with wireless and wireline networks providing mobile, internet, and TV services across the country. In addition, BCE has a large media division that includes sports teams, a television network, specialty channels, radio stations, and an advertising business. To top it off, BCE also owns or has joint-venture partnerships in retail stores.
The company’s reach is so widespread that when Canadians call a friend, send a text, read an e-mail, stream a movie, listen to the news, or download music, the odds are pretty good that BCE that is involved somewhere along the way.
That’s a powerful business, and the company continues to extend its presence.
Last year, BCE made two acquisitions and launched a new business. In March, the company bought Manitoba Telecom Services in a $3.9 billion deal that bumped BCE into top spot in the Manitoba market and provided the telecom leader with a strong base in central Canada. In the fall, BCE launched Lucky Mobile, a low-cost prepaid mobile service. In January 2018, BCE completed its takeover of home security provider AlarmForce.
The new businesses should provide a boost to revenue and cash flow in 2018 and beyond.
Dividends
BCE recently raised the dividend by 5.2% for 2018. The company pays a quarterly distribution of $0.755 per share, or $3.02 per year for an annualized yield of 5.5%.
BCE has raised the payout by at least 5% per year over the past 10 years, and investors have received 14 increases since the fourth quarter of 2008. Management has maintained the targeted payout ratio of 65-75% over that time frame, with increases supported by growth in free cash flow. For example, free cash flow rose 6% on a year-over-year basis in 2017.
Looking ahead, BCE anticipates free cash flow will grow 3-7% in 2018, supported by revenue growth of 2-4%.
Risks?
Rising interest rates will eventually increase borrowing costs and could put pressure on cash flow available for distributions. That’s a big reason why the stock price has dropped from $63 in December to the current price of about $54.50 per share. Investors appear to be anticipating an exodus out of telecom and other go-to dividend sectors in favour of fixed-income alternatives. Some funds will likely move, but the pullback might be overdone.
Should you buy?
At the current price, investors can pick up a rock-solid 5.5% yield. If you’re looking for a buy-and-forget dividend stock to tuck away in your RRSP or TFSA retirement portfolio, BCE looks like an attractive pick today.
