After experiencing a 1.62% dip since July 4, 2023, the S&P/TSX Composite Index is down by 4.62% from its 52-week high. The Canadian telecom industry has remained strong, despite the Canadian benchmark index showing an overall weakness in the market. While several stocks in other sectors have slowed dividend growth or slashed payouts, the top 5G stocks in Canada have increased payouts.
As the race to become the leader in 5G intensifies, telecom providers have accelerated infrastructure investments. While the broader weakness in the market has not spared them, the top two Canadian telecom stocks continue to impress investors with good returns.
Today, I will discuss the two telecom giants you should keep an eye on if you want to benefit from positive developments in the industry.
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How the telecom giants continue increasing dividends
BCE (TSX:BCE) and Telus (TSX:T) are the giants leading the Canadian telecom industry. Between 2020 and 2022, several energy stocks slashed dividend payouts, but these two managed to continue increasing payouts. This came despite accelerated capital investments to expand and innovate 5G offerings.
A dividend-paying stock typically tends to pause or slow down dividend hikes when cash flows and profits fall. That said, BCE stock and Telus stock increased dividends by 5% and 5-7%, respectively, even when rising inflation depreciated profits. The ability to pull this off came with the fact that the downturn in cash flows and profits is temporary.
Upgrading to 5G infrastructure is not a small deal. 5G technology offers many more use cases than 4G technology, creating an ecosystem for new technologies and innovations. With the shift to 4G, we saw a boost in video calling, live streaming, and cloud computing, benefiting telecom providers in 2010.
BCE stock grew its dividend by 14.6% in 2011 and 8.6% in 2012 after normalizing dividend growth to 5% since. Telus stock grew its dividends by over 10% annually between 2011 and 2015. With 5G technology, the growth potential is even greater. By facilitating innovations in artificial intelligence (AI), 5G technology will play a critical role in shaping the future.
Profitability potential is promising
Due to rising interest rates and inflation, BCE and Telus stock have seen profits decline and interest expenses increase. That said, the revenue growth coming through 5G technology will be more than enough to recover, reduce debt, and build excess cash reserves in the coming years.
Once interest rates and capital expenses on 5G infrastructure ease up, the profitability for both telecom giants can improve. With greater cash to repay debt and grow dividends, the potential profits from 5G can set BCE and Telus investors for substantial returns on their investments.
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Foolish takeaway
With the market’s bearish momentum weighing down on stocks across the board, another interest rate hike can lead to further downturns. The increased recessionary fears have brought down share prices for telecom stocks as well.
As of this writing, BCE stock trades for $58.63 per share, down by 11.23% from its 52-week high. Telus stock trades for $25.32 per share, down by 17.71% from its 52-week high. If I had to choose between the two, I would invest in BCE stock due to its industry-leading position giving it a greater potential market share in the future.
