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.
