Recent stock market weakness has given investors much to think about. Has the bull market finally hit its top, and are we finally in for a period of protracted weakness?
These are questions that have been on the minds of many investors, me included – questions that we need to answer in order to make the best decisions moving forward.
Recognizing that even the experts do not have a consistently great track record of timing these things, and that we certainly do not have a crystal ball that would lead us to the right answer, let’s agree that we can at least say that the downside risk is big right now.
BCE’s predictable earnings and cash flow are ideal in a bear market
Being in the telecommunications industry with high barriers to entry and strong competitive advantages, BCE is certainly surrounded by a strong moat.
The telecommunications industry and its established players such as BCE are well known for their stability and predictability for the following reasons.
With 51% of its revenue coming from its stable and predictable Bell Wireline segment, and 37% coming from its faster growing wireless segment. It has been BCE’s goal to increase the faster growing wireless business.
Looking at recent results, we can see that this has been working despite the fact that the wireless segment is highly competitive.
In the company’s recently reported second quarter results, wireless revenues increased 3.8% while wireline revenue increased 1.4%.
BCE’s success in its wireless segment is highlighted by the fact that the second quarter was the best since 2001, with a 30.6% growth rate in net subscriber additions.
BCE’s revenue continues to steadily rise, and this is matched by impressive gains in its free cash flow numbers. Free cash flow has risen an impressive 72% in the last five years, as the company continues to leverage its size and drive home efficiency improvements.
In the past 10 years, BCE has increased its dividend by 117% to the current $3.17 per share. The latest increase was a 5% increase in the first quarter, and the current dividend yield for BCE stock is a generous 5.15%.
BCE has a strong balance sheet
BCE has more than $1 billion of cash, healthy debt levels of 2.9 times EBITDA, and continuing strong free cash flow generation that will just make these number better and better.
Second quarter free cash flow was up 10% to almost $1.1 billion, so we can see that BCE is well set up for its growth investment plans and well set up to continue to return cash to shareholders.
BCE has good growth ahead
As we have witnessed, BCE has a strong financial position that will help the company follow through on its growth plans. This leaves BCE with ample firepower to build out their FTTH (fibre to the home) network, using optical fibre instead of existing copper infrastructure.
BCE Inc. is spending billions investing in fibre-optic networks, as this is the future of the telecommunications industry.
BCE is also continuing to invest in its wireless offering, which is currently ranked behind Telus in terms of speed, but is also gaining new subscribers at a record pace. Investments such as these will ensure that BCE’s leadership position will be maintained well into the future.
Foolish bottom line
Clearly, BCE is a quality defensive stock that not only offers safety of principal for investors, but also a dividend income. The company has strong fundamentals and company-specific strengths, and is well positioned for the future.
This dividend stock is looking increasingly attractive as one of the best stocks to own in a bear market.
Also, BCE stock can be seen as somewhat of a bond proxy, and with interest rates looking to go lower again this year, this safe, high-yield stock is still looking very attractive from a more macro standpoint as well.
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Fool contributor Karen Thomas owns shares of BCE INC.