The steep decline in the share prices of Canadian telecom stocks is giving investors who missed the bounce off the 2020 market crash another opportunity to buy great Canadian dividend stocks at discounted prices for self-directed Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) portfolios focused on passive income and total returns.
BCE
BCE (TSX:BCE) is Canada’s largest communications company, with a current market capitalization near $46 billion. The stock trades for $51 per share at the time of writing compared to $65 earlier this year and as high as $73 at the peak in 2022.
BCE uses debt to finance part of its capital program. The surge in interest rates is driving up borrowing costs for the company. This is projected to put a dent in adjusted earnings per share this year to the tune of 3-5%, although BCE expects to deliver 1-5% growth in operating revenue and free cash flow growth of 2% to 10%.
The core mobile and internet services businesses are performing well. BCE’s media division, however, is suffering from declining ad spending in the television and radio segments. In June, management announced staff reductions of 1,300, or about 3% of the overall workforce, with the media division taking the largest hit.
BCE raised its dividend by at least 5% in each of the past 15 years. At the time of writing, the stock provides a 7.6% dividend yield.
Telus
Telus (TSX:T) has a market capitalization of roughly $33 billion at the time of writing. The share price trades near $22.50 compared to a 12-month high of around $29 and above $34 at the peak last year.
Telus avoided the temptation to spend billions of dollars on traditional media assets over the past two decades. Pundits have long debated whether that was a wise strategy. In the current environment, Telus isn’t faced with the same challenges as BCE regarding the impact of declining ad spending on radio and TV platforms, but Telus hasn’t completely dodged the effects of the market headwinds.
As with BCE, Telus uses debt to fund its capital initiatives. Rising interest rates are driving up borrowing costs and will hurt adjusted profits this year. Telus is also getting hit by weaker revenue at its Telus International subsidiary, which Telus spun off in an initial public offering in 2021. TIXT provides IT and multi-lingual call centre services to global firms.
As a result of the challenges at TIXT, Telus had to reduce its financial guidance for 2023. The company also announced staff cuts totalling 6,000 positions. That being said, Telus still expects consolidated revenue to rise by at least 9.5% in 2023, supported by ongoing strength in the mobile and internet services business lines.
Telus has increased its dividend annually for more than two decades. Investors who buy Telus at the current share price can get a 6.4% dividend yield.
The bottom line on telecom stocks
Ongoing volatility should be expected until the Bank of Canada signals it is done with rate hikes. However, BCE and Telus pay attractive dividends that should continue to grow, and these stocks already appear oversold. If you have some cash to put to work in a buy-and-hold TFSA or RRSP, BCE and Telus deserve to be on your radar.
