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BCE (TSX:BCE) Stock: Is the Share Price Headed to $70?

Canada’s largest communications company just reported Q4 2019 results — and the market appears to like what the company had to say about the quarter and the outlook for 2020.

Let’s take a look at BCE (TSX:BCE)(NYSE:BCE) to see if it deserves to be on your buy list right now for a TFSA income portfolio.

Steady ship

BCE delivered steady results for Q4 and full-year 2019. The telecom giant generated a 1.6% increase in operating revenue compared to the same period in 2018. Adjusted EBITDA jumped 4.8% to $2.5 billion and margins expanded 1.2 points to 39.7%.

Net earnings attributable to shareholders rose 10.9% with adjusted earnings essentially flat on a per-share basis. Free cash flow came in at $894 million.

The wireline, wireless, and media businesses all contributed to the positive results. Total wireless net additions in the quarter came in at more than 123,500.

On the wireline side, BCE added more than 57,600 net new customers. Bell Media’s revenue rose 3.4%, driven by higher subscriptions to its Crave streaming service and contract renewals with TV distributors.

For the full year, adjusted net earnings per share (EPS) came in at $3.50, compared to $3.51 in 2018. Cash flow from operating activities increased 7.8% and free cash flow rose 7% to $3.8 billion.

2020 outlook

BCE is targeting revenue growth of 1-3% this year and adjusted EBITDA growth of 2-4%. Adjusted EPS is expected to be $3.50-3.60 and free cash flow growth is targeted at 3-7%.

This is important because free cash flow is used to pay the dividends and rising cash available for distributions helps keep the payout ratio in line with BCE’s 65-75% target.

Overall, the big machine continues to roll along at a slow and steady pace.

Dividends

BCE just announced a 5% increase to the dividend. The new annualized payout is $3.33 per share compared to $3.17 in 2019. At the time of writing, this translates into a yield of 5.2%.

BCE is widely favoured as a reliable dividend stock and the yield is about 3% higher than income investors can get from a GIC today.

Risks

BCE’s share price took a hit in 2018, falling from $62 to $51 before reversing course at the end of the year and continuing to rally through most of 2019.

The downturn occurred as the U.S. Federal Reserve and the Bank of Canada aggressively raised interest rates. This drove down bond prices, which increased yields, making debt more expensive.

BCE uses debt to help fund its large capital programs and higher borrowing costs can put a dent in cash available for distributions.

Rising interest rates also boost returns offered on GICs. For example, the banks offered five-year GICs in late 2018 with yields as high as 3.5%. In that environment, conservative investors start to move out of dividend stocks and into the safer alternatives.

In hindsight, the better move would have been to buy BCE near $51 per share.

A return to rate hikes would be negative for BCE, so investors have to keep that in mind when evaluating the stock.

Should you buy BCE today?

The U.S. Federal Reserve cut rates three times in 2019 and the Bank of Canada hit the rate hike brakes. The two central banks are expected to stay put for 2020, or even make cuts.

Over the next couple of years the trend is expected to be neutral or negative. In the event of an economic downturn caused by the effects of the coronavirus, rates could fall before the end of the year or head lower in 2021.

That would provide continued support for BCE’s share price. The stock is back above $64 and a slow drift toward $70 wouldn’t be a surprise by the end of the year, especially if interest rates are cut again.

If you are searching for a reliable dividend stock with above-average yield, BCE deserves to be on your radar today.

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Fool contributor Andrew Waker owns shares of BCE.

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