Income Investors: BCE Stock and its 6%-Yield Dividend a Steal

BCE Inc. (TSX:BCE)(NYSE:BCE) stock is a must-buy for passive income investors who want to pay less to get more yield for the long run.

| More on:
money cash dividends

Image source: Getty Images

Income investors have many options, with COVID-hit stocks like BCE (TSX:BCE)(NYSE:BCE), which is still down considerably from pre-pandemic highs. Along with the stock’s 2020 decline is a proportional swelling of the Canadian telecom behemoth’s dividend yield, which is just north of the 6% mark at the time of writing.

While a worsening of the COVID-19 pandemic over the near-term does not bode well for the firm’s average revenue per user, as another full lockdown could be in the cards if Canada were to lose control of the spread, as the U.K. has in recent weeks.

A more contagious strain of COVID-19 has touched down in Canada, but whether it causes a sudden spike remains to be seen. Regardless, the recent weakness in BCE stock and the broader basket of telecoms is nothing more than an opportunity for long-term-thinking income investors to get more yield for a better price.

BCE could lead the upward charge in a sustained economic recovery

In due time, this terrible pandemic will end, and the telecoms, I believe, will be among the first of firms to see their top and bottom lines return to 2019 levels. The demand for mobile (and roaming) data has waned. Still, given there’s likely a considerable amount of pent-up demand for going out again, given humans very social creatures, I think there’s a high chance that a top Canadian telecom like BCE could make up for lost time once COVID-19 finally gets conquered.

In the meantime, ARPUs could continue to weaken amid the current wave of COVID-19. With a greater rate of infections comes a higher chance of viral mutations. With a more infectious U.K. variant thrown into the mix, the federal government is going to need to put forth tougher restrictions or run the risk of further economic damage and a potential reversal of the progress made during partial reopenings.

Ready for another round in the ring with Mr. Market

Fortunately, BCE has more than enough liquidity to weather the storm. The company is an absolute behemoth that’s still remarkably liquid. The stock sports a 0.9 current ratio and an operating cash flow stream that’s remaining robust.

Even if people aren’t using their mobile data as much, those stuck in those two-year-long contracts will still need to pay their monthly phone bills. And given the profound amount of stimulus and higher savings rates of Canadians, it’s looking less likely that BCE and its peers will face the same pressure as they did during the worst of the first wave when there were no emergency stimulus measures in place.

With BCE stock trading at 2.9 times book value and 2.1 times sales, both of which are at the lower end of their respective historical ranges, I’d say BCE stock and its bountiful dividend look like a steal for those looking to invest in the post-pandemic world.

Foolish takeaway on BCE stock

BCE is coming off a terrific third quarter (a mild earnings beat), a massive improvement from BCE’s brutal second quarter. With the worsening second wave, I suspect BCE could flip-flop back to another poor quarter as the pandemic worsens over the near-term.

That said, I think the stock should be given a free pass, given its resilience and would encourage income investors to load up on the stock on any further lockdown-induced dips, as the yield looks to expand further, potentially towards the 7% mark 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 Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »