Canada’s telecom sector boasts a few high-quality dividend stocks that can be excellent long-term investments. With the advent of 5G technology, telecom stocks have the opportunity to offer much more shareholder value in the coming years. Boasting solid fundamentals and operating in a largely consolidated industry, BCE (TSX:BCE) is the top telecom operator in Canada.
Telecom stocks like BCE offer juicy dividends that the underlying companies can support and grow comfortably. Due to the essential nature of the services they provide, telecom stocks also offer more stability than the broader equity market to investors. Between high-yielding dividends and relatively lower volatility, BCE stock can be an excellent investment to own during any market cycle.
That said, the sector has not been safe from the effects of macroeconomic issues. The stock market performance of some of the top names in the industry has been volatile in the last 18 months. While relatively resistant to recessions, telecoms are not entirely immune to their effects.
Today, we’ll look at the broader market situation and how BCE stock fares as a long-term investment to consider.
The interest rate crunch
To combat rising inflation, central banks in the U.S. and Canada have been increasing key interest rates for several months. While the move can cool down the red-hot inflation, it is a double-edged sword. Higher interest rates make borrowing difficult, creating a headwind for companies across all sectors of the economy. Telecom giants like BCE stock also feel the pressure of higher interest rates.
That said, the Bank of Canada (BoC) will eventually take measures to bring interest rates down. Lower interest rates can be a major boost to the broader economy, including telecom providers like BCE stock. Since it may take over a year for that to happen, Canadian investors can capitalize on the share price weakness due to macroeconomic issues.
The largest Canadian telecom operator
Boasting a $55.83 billion market capitalization, BCE stock is the biggest telecom provider in Canada. As of this writing, it trades for $61.40 per share, boasting a juicy 6.30% dividend yield. Currently, BCE stock is down by over 10% from its 52-week high. Despite its recent downturn, BCE stock can be an excellent long-term investment.
The company has more than enough capital to continue expanding its 5G and 5G+ capabilities into new markets. A recession might put pressure on its profitability in the short term, possibly leading to further pullbacks in its share prices over the coming weeks. The lower its share prices fall, the more inflated its dividend yield might become.
While higher yields should typically worry investors, BCE stock can continue funding its shareholder dividends comfortably as it weathers the storm.
Foolish takeaway
With the potential to deliver substantial capital gains and consistent dividend income, BCE stock can be an excellent asset to own in the long run. By allocating a portion of your Tax-Free Savings Account to shares of BCE stock, you can enjoy capital gains and dividend income without incurring taxes on your earnings from the stock.
