Telus (TSX:T) and BCE (TSX:BCE) are two of Canada’s best-known telecom companies. Both distribute phone, TV, and internet service across Canada. Also, both have shares offering very high dividend yields at the moment. These companies are very similar, but there are differences between them as well. For example, BCE operates a news media subsidiary, whereas Telus runs a call centre business. So, these two telecoms have taken very different paths to diversifying away from their core businesses. In this article I will analyze Telus and BCE side by side, so you can decide which is the better buy for you.
Readiness for 5G
Telus is very well known for its rapid deployment of 5G. The company decided to avoid using components made by Huawei all the way back in 2020, which gave it a big edge over competitors that were using them. In 2022, the Federal Government banned Huawei components from 5G networks nationwide, meaning that Canada’s telecom giants had to switch suppliers. Telus had been going with Ericsson from the beginning, so it got a headstart. Today, it has one of Canada’s largest 5G networks, despite being smaller than most of its competitors overall.
Bell’s 5G rollout wasn’t as swift as Telus’, but its network is just as big today. In fact, the company itself claims to have the largest 5G network in Canada, although a few of them are making this claim. According to independent sources, Bell’s 5G network is as fast as Telus’ is. So, Telus and BCE are about tied in 5G today.
Financial performance
As we’ve seen, BCE and Telus are quite comparable in terms of their 5G networks. 5G is the most obvious growth ‘catalyst’ in the telecom space right now, so it’s not particularly useful in comparing Telus with BCE. This leaves the financials to decide which company is better. First, let’s take a look at Telus. As of June 11, it had:
- A 7% revenue CAGR over five years (‘CAGR,’ compound annual growth rate, is a compounded, annualized return measure).
- A -4.9% earnings CAGR over five years.
- A 7.6% net income margin.
- A 1.5 debt-to-equity ratio.
- A 118% payout ratio.
Overall, this picture isn’t very compelling. The company’s earnings per share is on the decline and there’s more debt than equity. The payout ratio is over 100%, which suggests that Telus is paying more in dividends than it actually earns in profit. I’d expect this stock to appreciate fairly slowly if at all, should past results continue into the future.
Now let’s look at BCE’s numbers.
As of June 11, BCE boasted:
- A 1.2% five-year revenue CAGR.
- A -2.55% five-year revenue CAGR.
- An 11.2% net income margin.
- A 1.5 debt-to-equity ratio.
- A 111% payout ratio.
As you can see, it’s not such a great showing from BCE either. Revenue and profit are both declining, and the payout ratio is well over 100%. Personally, I would not be rushing out to buy either Telus or BCE shares today, but if I had to pick one, I’d go with BCE, because its rate of earnings decline has been slower than Telus’. Its payout ratio is also slightly better.
