Better Buy: BCE (TSX:BCE) or Shopify (TSX:SHOP)?

Shopify Inc. (TSX:SHOP)(NYSE:SHOP) just passed BCE Inc. (TSX:BCE)(NYSE:BCE) in market cap. Will it continue to leap past Canada’s largest telecom?

| More on:
edit Woman calculating figures next to a laptop

Image source: Getty Images.

After a big move in the stock this week, Shopify (TSX:SHOP)(NYSE:SHOP) recently surpassed a $56 billion market capitalization, putting it in the top 10 most valuable companies in Canada.

The company it knocked out of the top 10 was none other than BCE (TSX:BCE)(NYSE:BCE), one of Canada’s oldest and most mature companies.

These two companies couldn’t be more different. One is an unprofitable growth machine, with a demonstrated record of growing revenue by at least 50% per year for a number of years now. The other is as boring as it gets, barely increasing revenue each year while it pays out fat dividends to investors.

Yet there’s an argument for having each stock in your portfolio. Let’s take a closer look at each to determine which one you should be buying today.

Shopify

Shopify is perhaps Canada’s top growth stock. Bulls don’t see that growth slowing down either.

Shopify’s core business is connecting retailers with customers through the internet. The company creates tools that let entrepreneurs easily create their own website, process payments, manage inventory, and get their products listed with other top retailers. Its platform powers some 500,000 websites and is quite affordable for an entrepreneur just starting their online business.

Not content to stop there, the company has announced some interesting expansion efforts of late. It now offers financing programs for small businesses, a fulfillment network that will use regional warehouses to lower shipping costs for merchants, and point-of-sale software to help brick-and-mortar retailers manage their businesses.

As CEO Tobi Lütke puts it, “it should be easier than ever to start a business, but entrepreneurship is still too hard. Our job is to keep innovating on behalf of entrepreneurs so they can compete in an ever-changing retail landscape.”

There’s just one problem: Shopify’s stock is incredibly expensive. The company essentially breaks even, and it’s likely serious profitability is still years away. This translates into Shopify being a sentiment stock. As long as sentiment is good, shares should keep marching higher. But if sentiment turns, look out below.

BCE

Deep down, BCE and Shopify sort of do the same thing — just for different groups of customers. Shopify connects retailers with customers. BCE connects everyone with everything online. Both specialize in bringing people together over the internet.

The big difference is, BCE’s business is much more mature than Shopify’s. But that doesn’t mean the provider of wireless, television, internet, and home phone services is just content to sit back and process monthly payments from its many customers. It is investing in the next wave of technology, like upgrading wireless data speeds from 4G to 5G.

Ultimately, BCE’s version of connecting people is incredibly profitable. The company is projected to earn $3.55 per share in profits in 2019, with the bottom line increasing to $3.74 per share in 2020. It must invest into the future of its business, but free cash flow is consistently robust. And since the company is a big player in a mature market, it’s able to ensure steady — albeit unspectacular — growth by slowly raising rates to customers.

For many BCE investors, the whole reason to put cash into the company is for the stock’s generous 5.1% dividend. BCE has delivered a history of consistent dividend growth, and investors should be able to expect 5% annual raises in the payout over the long term.

Which should you buy?

Shopify offers the better long-term return potential. But it also comes with much more risk. If the company’s growth numbers start to disappoint, investors could move en masse to the next big thing. This could translate into a 30-50% loss virtually overnight.

BCE shares are not going to double over the short term. But the stock offers the potential for 8-10% annual returns over the long term with only a minimal chance of a big short-term decline. It’s the choice for boring investors who are willing to sacrifice some potential returns for more predictable results.

Personally, I’m a BCE man. I admire Shopify’s growth, but I don’t want to be anywhere near that stock when the market falls out of love with it.

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 Nelson Smith owns shares of BCE INC. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »