Better Buy: BCE Stock vs. Telus

What TELUS stock lacks in yield, it makes up for in better capital gains potential over BCE stock.

| More on:
woman data analyze

Image source: Getty Images.

The Rogers Communications and Shaw Communications merger deal has been extended for a fourth time and remains uncertain. However, Canadian investors who wish to add defensive, relatively low-volatility telecoms stocks to their retirement portfolios may still buy TELUS (TSX:T) stock or BCE (TSX:BCE) stock for a steady passive-income stream and some respectable capital gains for 2023 and beyond. That said, choosing which telecom stock to buy may be a tricky decision, as the two behemoths differ on two very important aspects: current income yields and capital gains potential.

To help with the selection decision, one may compare the telecommunications stocks’ current income yields, potential dividend-growth rates, growth opportunities, and lastly, their current valuations. Let’s have a closer look.

Better dividend play: BCE vs. TELUS stock

BCE is a $55.4 billion telecom giant that has built one of the best 5G networks in Canada and delivers compelling content through owned television networks. The company is larger than TELUS in revenue generation (it reported $24.2 billion in sales in 2022), and it pays a quarterly dividend that yields 6.3%, which is better than TELUS’s current payout.

TELUS is a $39.3 billion telecom innovator that has found new ways of re-engineering revenue growth. Telus stock pays a quarterly dividend that currently yields 5.3% annually. The yield may be lower than that of BCE today; however, TELUS’s dividend has been growing at a higher average annual rate of 6.4% than that of BCE’s (5.1%) over the past three years.

BCE stock’s current dividend yield of 6.3% offers investors a 100-basis point advantage right off the bat. It’s much better than the initial dividend yield on TELUS stock of 5.3% today. The difference in annual dividend income is huge. For example, on a $100,000 new investment, the yield difference could amount to $1,000 every year (being $6,300 minus $5,300). However, TELUS has some capacity to catch up over a long-term investment horizon, and it just might.

Verdict: BCE stock offers better current income, and its average dividend-growth rate is respectable. It’s a better dividend stock for current income right now. Although TELUS has had a higher average dividend growth lately, BCE could maintain a yield advantage for longer than five years.

Best buy for total investment returns: BCE vs. TELUS stock

Investments are sometimes best evaluated on their total investment returns capacity. Although the two stocks belong to the same industry and their prices move somewhat in tandem, one has a better capacity to generate capital returns than the other. If you have a long-term view, and you intend to buy and hold either TELUS or BCE stock for the next 10, or more years, then TELUS stock could be your better bet for total holding period returns.

TELUS has found new ways to generate near double-digit revenue-growth rates. Its forays into healthcare, agriculture, and international business services are new growth frontiers that will be more important in giving TELUS stock a capital gains edge over BCE. Telus reported an 8.6% year-over-year growth in revenue for 2022 — more than double BCE’s 3.1% revenue-growth rate during the past year.

Bay Street analysts strongly believe that TELUS could trounce BCE in growing revenues and earnings over the next five years. The five-year earnings-growth outlook for TELUS, at 13.6% annually, is far higher than BCE’s 4.9%.

Companies that generate higher revenue and earnings-growth rates should attract higher valuations, yet TELUS’s forward price-to-earnings (P/E) multiple of 19 times is just a tad higher than BCE’s 17.6. Stellar execution should see TELUS stock generate better price appreciation over the next few years.

Actually, TELUS stock has generated better capital gains for its investors over the past three years, and it’s well set to continue doing so over the next half-decade, too.

TELUS stock 3 year total return of 44.97% beats BCE stock's 32.23% total return.
TELUS stock beats BCE on total returns: 3-Year Total Return Comparison. Source: YCharts

Past performance may not reflect future returns; however, TELUS has strong legs to keep running on.

Investor takeaway

Both TELUS stock and BCE stock are good retirement investments to add to a long-term-oriented portfolio. The latter offers a higher current income yield; however, what TELUS lacks in yield, it makes up for in capital gains potential, and investors in TELUS stock could enjoy higher total returns going forward.  

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 Brian Paradza has no positions in any of the stocks mentioned. The Motley Fool recommends Rogers Communications and TELUS. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Path to retirement
Dividend Stocks

Investing for Retirement? These Dividend Stocks Can Help You Get There

TD Bank and Brookfield Renewable Partners are two solid dividend-growth stocks to hold for decent total returns through retirement.

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s How to Boost Your Monthly Income

Parents, you have enough to worry about. But if you can put aside even $40 per month, that can create…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for a Reliable Retirement Income? Consider These Dividend-Paying Stocks

Investors looking to establish a reliable retirement income have no shortage of options to choose from. Here's a trio of…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Oversold Dividend Stocks That Could Make You Rich When They Bounce Bank

Don't wait around for these oversold dividend stocks to bounce back, each certainly will, which is why now is the…

Read more »

A small flower grows out of a concrete crack.
Dividend Stocks

Down 8% Last Month, Canadian Tire Stock Is a Deal Heading Into June 2023

May wasn't a good month for the stock, but June has been different from the beginning and may present an…

Read more »

Canadian Dollars
Dividend Stocks

Need Passive Income Right Now? Turn $20,000 Into $152 Every Month

This dividend stock may be down now, but offers substantial passive income through its 9.31% dividend yield as of writing!

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

Read more »

Dividend Stocks

2 Top Canadian Value Stocks in June 2023

Canadian Imperial Bank of Commerce (CIBC) stock is a compelling buy in June, and so is this Canadian REIT.

Read more »