BCE (TSX:BCE) and TELUS (TSX:T): Which Is a Better Dividend Stock to Buy Today?

Which big telecom stock is a better buy for dividends and total returns — BCE (TSX:BCE)(NYSE:BCE) or TELUS (TSX:T)(NYSE:TU)?

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Telecom stocks have been darlings in dividend stock portfolios. It’s hard to ignore when the likes of BCE (TSX:BCE)(NYSE:BCE) and TELUS (TSX:T)(NYSE:TU) stocks offer generous and growing dividend income.

So which is a better dividend stock to buy today?

Let’s explore the two favourite dividend-growth telecom stocks across multiple facets.

Dividend yield and safety

BCE stock yields 5.1%. It pays a quarterly dividend that equates to an annualized payout of $3.33 per share. Its payout ratio is expected to be about 93% of its estimated 2020 earnings per share. However, its free cash flow payout ratio is estimated to be about 79%.

Telus stock yields 4.5%. It pays a quarterly dividend that equates to an annualized payout of $2.33 per share. Its payout ratio is expected to be about 80% of its estimated 2020 earnings per share and its free cash flow payout ratio is estimated to be about 84%.

Although BCE offers a bigger dividend yield, Telus’s yield is a tad bit safer, as it’s well covered by both earnings and free cash flow.

Additionally, the telecom’s 10-year yield history suggests that BCE is a good buy at a yield of about 5.5% and Telus at a yield of about 4.8%. In that respect, Telus is also a slightly better buy.

BCE Dividend Yield Chart

BCE Dividend Yield data by YCharts. The 10-year dividend yield history of BCE stock and TELUS stock.

Dividend growth potential

BCE stock has increased its dividend per share for 11 consecutive years. Its five- and 10-year dividend growth rates are 5.1% and 7.2%, respectively. It’s estimated to experience earnings-per-share growth of about 4% per year over the next three to five years.

Telus stock has increased its dividend for 16 consecutive years. Its five- and 10-year dividend growth rates are 8.2% and 9%, respectively. It’s estimated to grow earnings per share by about 7% per year over the next three to five years.

Telus stock will likely continue to boost its dividend at a higher rate than BCE due to the former’s anticipated greater profit growth and lower payout ratio (based on earnings).

Valuation

At writing, BCE stock trades at right under $65 per share and a price-to-earnings ratio (P/E) of about 18.5, while Telus stock trades at $52 per share and a P/E of about 18.1.

Telus is cheaper because it has a lower P/E and is expected to have greater earnings growth. The stock recently dipped to $52 per share because it announced an equity offering of $1.3 billion.

Investor takeaway

Telecom stocks can serve as a core holding for a diversified dividend portfolio due to their sticky nature — people nowadays can’t do without their internet or data. It’s like breathing to them.

Between the two big Canadian telecoms that increase their dividends periodically, Telus appears to be a better buy for total returns and dividend growth.

Rogers Communications was not a part of the discussion because it hasn’t been consistently increasing its dividend in the last few years. However, it still pays a nice dividend that yields 3%.

Moreover, it’s the cheapest of the three big telecoms with a P/E of 16. Due to its low payout ratio of about 47% of earnings, it could be the black horse with the biggest dividend hikes in the future should management choose that path once again.

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 Kay Ng has no position in any of the stocks mentioned.

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