BCE (TSX:BCE) stock is a favourite among many Canadian dividend investors. The name provides a very generous, safe amount of passive income (6.26% yield at writing) alongside slightly less volatility versus the broader TSX Index (0.48 beta). While I’m not against looking to the name if you seek to give your income portfolio a jolt, investors should know that they probably won’t get a lot in the way of capital appreciation over the years.
Over the past five years, BCE stock is up less than 10%. For young investors seeking to build up wealth over the decades, there are far better options out there that can provide the perfect mix of income and appreciation.
Indeed, the biggest knock against BCE is its growth profile. The $56 billion behemoth has a media business that acts as quite the drag on growth. Further, it has been quite vulnerable amid macro headwinds. Not to mention the rise of streaming has taken a major stride away from the legacy media firms. In any case, BCE isn’t a buy for its growth, it’s a buy for its resilient cash flow stream and rich history of rewarding investors with frequent dividend hikes.
At 20 times trailing price-to-earnings, BCE stock still isn’t what you’d consider cheap, even after the stock’s recent slide off April 2022 highs. As shares of BCE decline, its dividend yield creeps higher, beckoning in income-hungry dip-buyers.
For that reason, BCE seldom goes on sale by a considerable amount. Retirees just love the name and they should, as it’s one of the dividend heavyweights that can deliver. What you pay is essentially what you’ll get from the name: a big dividend and minimal capital appreciation over time.
As a young investor, I’d argue there are better, cheaper places to put money to work in this climate. Consider the following dividend heavyweight:
Telus (TSX:T) is a long-time rival of BCE, but it’s one that I think can deliver more total returns (capital gains plus dividends) over the next 10 years. I prefer Telus for its lack of media business and superb customer service track record. Further, the firm is in full-on growth mode and consistently wins the title of Canada’s best network. As Telus continues to build out its 5G infrastructure, I expect more big wins to come.
The $39.6 billion telecom sports a respectable 5.1% dividend yield. With a 24.2 times trailing price-to-earnings multiple, Telus stock is historically pricy. So, why pay more for less yield with Telus stock over BCE? Its earnings and free cash flows are growing at an impressive rate. Recently, the firm noted it expects free cash flow to soar 60% to $2 billion on the year, thanks in part to a curbing of capital expenditures.
As Telus pulls the brakes a bit amid a higher-rate world, I expect some very generous dividend hikes could be in the cards.
The bottom line on Telus over BCE stock
BCE stock is a great buy if you’re retired, are close to being, or just need the extra passive income. For everyone else, I think Telus has a lot more to offer as it looks to find the perfect balance between growth and rewarding shareholders.