BCE Stock Is a Buy While its Dividend Still Yields 6%

BCE (TSX:BCE)(NYSE:BCE) stock is a top income pick for dividend investors looking for bargains in the Canadian stock market today.

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BCE (TSX:BCE)(NYSE:BCE) stock has been caught in a rough patch over this past year. It’s not just COVID-induced pressures that have weighed on the stock, though. Dragged down by its media business, which has been a major sore spot in 2020, BCE is a behemoth that’s found it far more difficult to grow versus its peers, especially Telus, which, following its spin-off of Telus International, is narrowing its sights on 5G and fibre.

BCE is still betting a considerable amount on the next generation of telecom tech to keep up. Earlier this year, the firm announced that it’s boosting its capital spending by a staggering $1.2 billion — an effort that BCE expects will double its 5G coverage. Undoubtedly, Canada’s top telecoms are pouring billions of dollars into their rollouts. In a few years’ time, they will help the Big Three pay massive dividends.

At the time of writing, BCE sports a colossal dividend that yields just shy of 6%. It’s a lofty dividend that’s been modestly stretched due to COVID-induced pressures on the stock. Despite the more favourable environment that lies ahead, BCE stock remains in limbo, currently down around 8% from its pre-pandemic high. Higher-margin offerings like roaming data and all the sort have been curbed due to COVID-19 lockdowns across Canada.

BCE stock: A reopening play with one of the best dividends out there

In the States, things have already begun to return to normal thanks to their incredible vaccine rollout. As Canada winds down from its third wave and more jabs are put in arms, I think we’ll be in a similar situation as the U.S. in a month or so from now. Things will reopen, people will start travelling just in time for peak season, all of which bode well for a recovery in demand for mobile data. Moreover, as COVID-19 is conquered, more people will head back to work. And with that, greater confidence to pick up that latest 5G-enabled smartphone or tablet.

The so-called “Roaring ’20s” will likely be felt by BCE and its peers in a big way. As I’ve noted in prior pieces, the telecoms were the safest reopening play. As COVID-19 is conquered, the telecoms will likely return to 2019 levels of business well before other riskier reopening plays — most notably, the airlines and cruise lines.

The downside risks for BCE stock

It’s not just the telecom’s faster recovery and potential 5G tailwinds that has me pounding the table on their stocks, though. It’s their sheer resilience through COVID-19. BCE’s dividend has held up, and it’ll likely continue to be held up if a high-impact, low-probability event such as a fourth major COVID-19 wave sends us back into lockdown come autumn.

In such a terrible scenario, BCE will take a hit, but not nearly as hard as most other reopening plays. So, whatever ends up happening next, BCE’s dividend, I believe, can be relied upon. It’s not at risk of falling on the chopping block. If anything, it’ll stand to be raised further en route to post-pandemic levels of normalcy.

Foolish takeaway

As we head into the summer season, I don’t think the 6% yield will remain as headwinds fade, and BCE stock begins its ascent to its pre-pandemic high. Given the uncertainties, I find it tough to pass up on the BCE’s risk/reward at these levels. It’s one of my favourite dividend picks to fight inflation.

Stay Foolish, my friends.

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. The Motley Fool recommends TELUS CORPORATION.

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