The Motley Fool

TFSA Investors: Should You Buy BCE (TSX:BCE) Stock for 6% Yield?

Image source: Getty Images

The recent weakness in markets has made BCE (TSX:BCE)(NYSE:BCE) more attractive for investors who want above-average returns for their long-term savings accounts, such as TFSA.

Canada’s largest telecom operator now yields more than 6%, offering one of the best dividend yields one can get from a quality stock in an environment when banks are offering close to zilch. If you’re still confused about buying the BCE stock, here are two points to help make you a decision.

A recession-proof stock

It’s hard to emerge completely unscathed if you’re an equity investor in the type of major downturn that’s taking place after the COVID-19 pandemic. But you can minimize your risk by diversifying your portfolio and adding low-risk dividend-paying stocks to your portfolio.

One of the biggest reasons to buy telecom utilities, such as BCE, is that they offer a shelter to income investors when the economy slips into a recession. People are highly unlikely to cut their internet and wireless lines, even when they lose their jobs. 

BCE has a strong dominant position in Canada’s highly regulated telecom market, where three big players make most of the revenues. BCE, through its diversified service offerings, including wireless, home internet, and media operations, has shown sustained growth in its subscribers.

BCE chief executive officer Mirko Bibic, in a recent earnings call to discuss the company’s first-quarter results, said that the company will keep laying fibre-optic cables to customers’ homes, expanding its fifth-generation wireless networks and providing more high-speed internet service to rural parts of the country, even as it faces short-term financial pressures.

“This is not a time to pull back capital spending on critical network infrastructure,” Mr. Bibic said. “These are healthy investments for the long-term benefit of our company, our customers and our economy.”

Growing dividend

BCE has long maintained a policy of increasing its dividend by 5% annually and has used a series of acquisitions to partly fuel the cash flow growth necessary to keep boosting the payout. 

I don’t think BCE’s dividend safety is under threat after the economic slowdown caused by the pandemic. The company will face a temporary slowdown in sales, but it will recover quickly once the virus is contained.

During the first quarter that ended on March 31, BCE revenue rose 5.4% to $3.69 billion from a year ago, as it added more wireless customers.

These factors make BCE stock an attractive option for TFSA investors to consider, despite its recent pullback, especially when its yield is touching 6%.

As per the company’s dividend policy, the company distributes between 65% and 75% of its free cash flow in payouts. In line with this policy, BCE has increased its annual payout by more than 100% since the fourth quarter of 2008; the payout is now at $0.8325 per share, paid quarterly.

If you analyze BCE’s stock performance this year, the stock is down about 8% compared with a 12% plunge in the S&P/TSX Composite Index. BCE is a slow-growing investment paying steadily growing dividends while preserving your capital.

Bottom line

Trading at $55.09 at the time of writing, BCE stock has become more attractive for the buy-and-hold TFSA investors. The current weakness creates a good opportunity to buy this stock cheap and earn steady income.

Speaking of TFSA stocks, here are our best picks for this month.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Haris Anwar has no position in the stocks mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.