Are you looking for a dividend stock that can beat market returns while giving you regular passive income? There is a dividend aristocrat that has been beating the TSX for the last 10 years. In the TSX Composite Index weighted towards energy and bank stocks, a telecom stock outperformed with stable returns and regular dividend growth.
The unstoppable dividend stock
The stock is BCE (TSX:BCE), which enjoys the oligopoly nature of communication services where three players command 86% market share. The company has been paying regular quarterly dividends for more than four decades without any dividend cuts.
When you look at the top dividend stocks, BCE might fall behind some energy stocks in terms of a higher compounded annual growth rate (CAGR), longer dividend history, and dividend yield. For instance, Enbridge stock has a five-year average dividend yield of 6.5% against BCE’s 5.5%. Moreover, Enbridge has had a 10% dividend CAGR for the last 28 years as against BCE’s 10% CAGR for 15 years.
But times are changing. The communication industry is growing thanks to the digital revolution. The fifth-generation technology has set the stage for smart cities and autonomous cars, giving way to new growth opportunities. The energy industry is going through a transition to renewable energy. The oil and gas industry is at its peak. That explains why Enbridge’s dividend growth rate slowed to 3% in the last three years while BCE’s remained stable at 5%.
The 5G revolution and proliferation of the Internet of Things (IoT) make BCE an unstoppable dividend stock for the next five-to-seven years.
The dividend stock that beats the TSX
BCE is also less volatile than the TSX Composite Index, with a five-year beta of 0.48. Beta is a measure of a stock’s volatility. The market beat is 1.0, so the 0.48 beta of BCE shows that the stock has a lower downside. Stocks with a low beta are attractive in a market downturn.
In the March 2020 pandemic downturn, the TSX Composite Index fell 33.6%, while BCE stock fell 19.6%. However, BCE stock underperformed (-9.6%) the TSX Composite Index (-8.66%) in 2022 as it suffered a fallback from the tech stock meltdown. This is even more reason to buy BCE stock as it is past the inflated price of the tech bubble.
Irrespective of the stock price momentum, the show stopper is BCE’s 6% dividend yield and 5% dividend growth. This dividend growth helps BCE outperform the TSX in all market cycles.
| $1,000 Invested | TSX Composite Index | BCE | Outperformance |
| 5 Years | $1,322.30 | $1,458.80 | 10.3% |
| 10 Years | $1,637.00 | $1,967.10 | 20.2% |
BCE’s five-year outperformance against the TSX
The last five years (April 2018–April 2023) have been pretty volatile for the TSX. The market witnessed the 2018 U.S.-China trade war, 2020 pandemic, 2021 tech and crypto bubble, 2022 bubble burst, and global energy crisis, and now the U.S. banking crisis.
In these five years, the $1,000 invested in the TSX Composite Index is now $1,322, whereas the $1,000 invested in BCE is $1,458. BCE outperformed the TSX by 10.3% because the $305 accumulated dividend supported the $153.8 in capital appreciation.
BCE’s 10-year outperformance against the TSX
Given the macro events, the last five years might not be ideal for analyzing a stock’s performance. But BCE has outperformed the TSX in the last 10 years (April 2013 to April 2023). The 2013–2018 period saw the 2016 oil crisis, which pulled the TSX down 17% in 2016.
An investment of $1,000 in the TSX Composite Index in April 2013 is now $1,637, and in BCE is $1,967. BCE outperformed the TSX by 20.2% because of the $623.7 accumulated dividend and $343 capital appreciation.
BCE maintained its dividend growth even during its three-year (2020-2022) accelerated capital spending program to roll out fibre and 5G networks. Now, it is reaping the benefit of its 5G rollout and expects 2023 free cash flow to increase by 2–10%, giving it liquidity to maintain incremental dividends.
