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Should You Buy BCE Inc (TSX:BCE) Stock Ahead of Earnings?

The year 2018 has not been the best year for BCE Inc (TSX:BCE)(NYSE:BCE). After slow revenue growth, declining earnings and down-trending ROE, the stock has slid about 13% year-to-date. Nevertheless, the stock pays a very generous dividend and has a fairly low P/E ratio. With analysts expecting earnings to recover this quarter, is it time to revisit BCE stock?

First, let’s look at what analysts are saying.

Earnings expectations

Earnings have been a weak spot for BCE recently. In the most recent quarter, they were down 7.30% from a year before. This is bad news for a stock whose main draw is its high dividend yield: if earnings continue to decline, then management may have to cut the dividend.

However, analysts are broadly expecting BCE’s earnings to recover.  According to Zacks Investment Research, analyst consensus is earnings per share of $0.71 in the current quarter for a modest year-over-year growth of 1.4%. There was some variation in opinions among the analysts polled, with the more optimistic among them expecting as much as $0.72, while pessimists projected as little as $0.69.

A dividend all-star

BCE is, of course, one of the biggest-yielding large cap stocks on the TSX. At the time of writing, the dividend yield was about 5.78%, which is significantly above average. Management also has a history of raising the dividend every year: the current dividend of $0.75 is up from $0.71 last year. The dividend payout has approximately doubled since 2009, when it sat at just $0.38.

Historical performance

The obvious weak spot for BCE is the stock’s historical performance. Put simply, it has underperformed the TSX both short and long term. BCE shares are down over one-month, six-month, one-year and year-to-date timeframes. The stock is up slightly over five years, but has unperformed the TSX average in this timeframe.

Especially worth nothing: BCE’s year-to-date decline of approximately 13% is much greater than the stock’s dividend yield, which calls into question the wisdom of buying it for the dividend. Of course, past performance does not indicate future performance.

It seems likely that BCE’s falling share price is due to recent earnings misses, so it may recover if the stock hits its earnings targets.

Bottom line

BCE  Inc is one of Canada’s biggest and most established companies, with a strong presence in the telecommunications space.

However, its significant market presence may be its biggest weakness: it and a handful of competitors have saturated the Canadian market for cable, internet and phone service. At this point, it would be difficult for BCE to grow without competing on price or expanding into foreign markets–neither of which it seems interested in doing.

Owing to its established market presence, BCE’s dividend is probably safe, making the stock an OK pick for investors who just want income to live off. If you’re looking for growth, though, I’d recommend looking elsewhere.

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Fool contributor Andrew Button has no position in any of the stocks mentioned.

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