Better Buy: Rogers Communications or BCE Stock?

With a potential merger on the way for Rogers stock, should investors throw out their BCE stock in favour of the merger?

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Hands shaking over a business deal

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It’s a fair question these days. With a looming merger between Rogers Communications (TSX:RCI.B) and Shaw Communications (TSX:SJR.B), it’s becoming less clear if BCE (TSX:BCE) will remain in the top spot. Even if it doesn’t, has Rogers stock become overvalued these days, or BCE stock for that matter?

Let’s look at both today and see which is the better buy for Canadians on the TSX today.

Rogers stock

It cannot be denied that becoming a larger company will make Rogers stock more powerful. It will bring in more revenue, more customers, and just more overall. However, anticompetitive concerns raised concerns over the $20-billion deal, which didn’t even include debt.

Investors in Rogers stock were also not impressed when the company stated it would sell off Videotron to “amplify” Freedom Mobile’s competitive impact. However, after making this statement to the committee on industry and technology, Rogers management went on to state that it doesn’t feel this deal will pose a threat to Rogers.

Investors may be concerned about the immediate future, with more clients moving towards Freedom Mobile and its owner Quebecor. Rogers wanted to make this Shaw deal no matter what, and that now looks like it may have offered up more than the company should have.

As for valuation, Rogers stock sits at a 3.03% dividend yield. On share price, Canada’s largest wireless service provider is on par with a year ago. So right now, it looks like investors don’t know what to think of the stock.

BCE stock

Then there’s BCE stock, which stands to have a major competitor on its hands when and if the Shaw and Rogers deal finalizes. Yet the company remains holding about 60% of the market share when it comes to telecommunications. Plus, it also has the fastest internet with its quick 5G rollout.

Even so, BCE stock continues to try delay tactics to at least slow down the merger. This includes not providing immediate access to Quebecor for using the company’s infrastructure, which the company has requested from its peers such as Rogers. Yet this doesn’t look like it will go far, as the Canadian Radio-Television and Telecommunications Commission (CRTC) stated telecom companies must provide access to local networks. This is to ensure no Canadian is left without access.

All this comes as BCE stock saw lower profits year over year, as did its fellow peers. It looked like the lows of the last six months were finally catching up to it. However, there was a recovery in the market over the last two months. This provided BCE stock with some growth that may continue for the next quarter.

Meanwhile, BCE stock offers a 6.15% dividend yield, though shares are down 7% in the last year as of writing. So what should Canadians consider when investing in telecom stocks?

Bottom line

Stay out of it. I would love to recommend one or the other here, but the future looks so uncertain at this stage I can’t in good conscious say you should absolutely choose one or the other. If you’re a retiree that may need this income in the next year or so, I would choose to just stay away all together for now.

However, long-term investors may want to consider the dividend offered with BCE stock. Furthermore, this rebound should see a nice bump in share price. As for Rogers stock, it doesn’t have as great of a deal at the current moment.

All in all, this eventual potential merger is likely coming. It could fail, Quebecor could fail, the Rogers merger could fail, but these are all ifs. For now, in this poor economic scenario if there’s anything you can count on at this point, it’s really just the dividend offered by BCE stock.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Rogers Communications. The Motley Fool has a disclosure policy.

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