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Battle of the High-Yield Telecoms: BCE (TSX:BCE) vs. Telus (TSX:T) … Which Should You Buy?

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Who doesn’t love making money while they sleep with a generous and stable dividend that you know will be safe no matter what?

Both BCE (TSX:BCE)(NYSE:BCE) and Telus (TSX:T)(NYSE:TU) are two dividend darlings that are the epitome of dividend stability. While the payouts of both firms are more than safe with annual dividend increases that are pretty much a guarantee moving forward, investors in the two dominant telecom titans have to be a bit worried about the competitive landscape which lies ahead.

Interest rates are standing pat for now, and that’s a huge positive for the capital-intensive telecoms that are spending money hand over fist on next-gen telecom tech. But that doesn’t mean BCE or Telus, two members of Canada’s Big Three telecoms, are out of the woods yet.

Competition is about to become that much fiercer with the rise of Shaw Communications’s Freedom Mobile, and as politicians who are pushing for lower data prices begin targeting the wide moats the Big Three, we could see a rise in volatility within the telecom space.

What does this rise in Canadian telecom competition mean for investors?

Both BCE and Telus will continue to sport sizable dividends, and they aren’t going to be at risk of reduction, so you can breath easy if you’re a conservative investor who relies on the monthly income payments of either behemoth.

At the time of writing, BCE and Telus sport yields of 5.3% and 4.7%, respectively, and although the payout is still as safe as they come, competitive pressures could wither away the magnitude of dividend growth and capital appreciation moving forward.

So, if you’re expecting market-crushing gains from the two telecom titans like they’ve posted since flying out of the Financial Crisis, you’re probably going to end up pretty disappointed with your results moving forward.

Freedom is coming…

Yes, Freedom Mobile has been here for quite some time now, and it still has an inferior LTE network relative to BCE or Telus. With a fresh slate in 5G, however, Freedom could realistically accelerate its subscriber growth, likely at the expense of the Big Three incumbents.

As federal regulators continue to do their best to minimize switching costs and drive down data and internet prices for Canadians, Freedom could get an unexpected windfall should it be granted first dibs at future spectra auctions in addition to a lack of hurdles that’ll likely be placed before its competitors.

Indeed, Freedom could threaten to break up what’s now known as the Big Three, as telecom price wars and aggressive promos become more common as they are south of the border. But that doesn’t mean you should ditch BCE and Telus to the curb, especially if you’re looking for safe passive income.

My suggestion? Understand the competitive landscape that lies ahead and insist on a margin of safety with BCE and Telus. If you can get a slightly higher yield at a better price, you could very well continue outperforming the market with either name. You may also want to consider hedging your bets with the disruptor in Shaw.

Which of BCE or Telus is the better buy today?

To be frank, I really don’t like either at today’s valuations. Both names look technically unattractive with what appears to be head-and-shoulders top formations, so I wouldn’t advise touching either today.

Instead, I’d wait for a better entry point, which may be in the cards over the coming weeks.

If you’re keen on getting some skin in the game right now, I’d have to go with Telus for its better customer service track record because I think its positive reputation with subscribers will help weather the competitive storm that’s on the horizon.

Stay hungry. Stay Foolish.

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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 Joey Frenette owns shares of SHAW COMMUNICATIONS INC., CL.B, NV.

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