The Canadian telecom stocks are easy to hang onto over extended periods of time. Their juicy (and usually growthy) dividend yields are bountiful, and their share prices tend to exhibit a below-average beta, meaning shares are less likely to correlate to the TSX Index. The combo of a low beta and high dividend yield makes the telecoms a worthy ride that can help investors weather any recession bumps in the road.
Over the past year and a half, the telecoms have felt broader market turbulence. In fact, shares of the top telecoms have been a tad choppier than the market. Though low beta tends to mean less correlation, it does not necessarily mean investors will be spared from feeling the potholes in the road.
Adjusting to the high-rate world
Higher interest rates have been a major headwind for so many companies, including the top telecom giants.
Though the Bank of Canada could keep rates higher for longer, I think the rise of AI (artificial intelligence) and last month’s banking jitters could provide enough of a disinflationary force to remove some of the “stickiness” of inflation. Of course, it’s hard to tell where inflation will head over the coming months. Regardless, I think the Bank of Canada’s job may not be as daunting, as it seems as inflation looks to gravitate lower from here.
Lower rates would be a boon for most stocks across the board, telecoms included. Though it could take more than a year for the rate cuts to come in, I’m more than willing to wait it out with the telecoms, as there are nice dividends to collect in the meantime.
Further, Canada’s telecoms don’t need rates to be lower to do well. Unprofitable technology companies may, but the telecoms are positioned to make it through any such high-rate environment. At the end of the day, the Big Three dominate the Canadian telecom market.
BCE: The top telecom stock to watch right now
BCE (TSX:BCE) is the heavyweight champ of the Canadian telecoms. With a $58 billion market cap and a massive 6.13% dividend yield, the blue-chip stock can act as a mainstay for any long-term-focused portfolio. Today, shares are down around 13% from their 2022 heights.
As the company continues expanding its 5G+ capabilities into new markets, the company looks well-equipped to capitalize on the continued rise of 5G and 5G+. Of course, a recession and high rates will weigh, but after the stock’s latest dip, it’s arguable that such macro risks are already well known by many.
The 22.6 times trailing price-to-earnings ratio is a tad on the high side. Personally, I’m just watching the name for now in case shares pullback closer to the $60 level. Remember, as shares retreat, the dividend yield will rise by some amount. With a secure payout, I wouldn’t worry about any sort of dividend reduction. BCE is one of the dividend stocks that has a larger yield by design.
The bottom line for high-yield dividend investors
BCE’s rivals in the Canadian telecom scene also offer nice dividends at modest multiples. However, the yield-hungry may wish to stick with BCE, especially if the yield swells above 6.5% again. The opportunity to snag a dividend yield at those heights may not last long, especially if macro headwinds pass by quicker than expected.
