Chasing Yield: The Balance Between Dividend Rate and Stock Stability in Canada

BCE (TSX:BCE) stock has struck a strong balance as a dividend stock that can bolster returns, and now could be the time to buy.

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Increasing yield

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In the world of finance, striking the right balance between investing in a dividend stock with a high dividend yield and one that provides stability can be a challenging task. High yields may appear tempting, but they often come with increased risk. Yet there are some that buck the trend. BCE (TSX:BCE) stock, a stalwart in the Canadian market, has exemplified this delicate balance over the years, offering investors a fruitful blend of returns, business growth, and consistent dividends.

The case of BCE stock

BCE stock, commonly known as Bell Canada Enterprises, has been a significant player in the telecom industry and a darling among dividend investors. Currently trading at 20.57 times earnings, the stock holds a mouthwatering 7.5% dividend yield. However, in the last year, BCE’s stock shares have faced an 8% decline. So, what’s the story behind BCE’s success in the past, and what can it teach us about investing in dividend stocks?

Mirko Bibic, president and chief executive officer of BCE and Bell Canada, emphasized BCE’s performance in the second quarter, saying, “Bell’s Q2 [second-quarter] results demonstrate that our consistent strong execution and delivering the compelling services that our customers want and value is a winning approach.”

BCE’s past success can be attributed to a combination of factors that appeal to both income-seeking investors and those who value stability. First and foremost, BCE has a long history of delivering not just dividends but also a growing business. Over the past several years, BCE has focused on building the best networks, investing in expanding its fibre footprint, and delivering faster mobile and internet speeds.

In the Q1-Q2 2023 Ookla Speedtest Award report, Bell’s pure fibre was ranked as the fastest internet in Canada, along with the fastest Wi-Fi. This commitment to technological advancement and network quality is a testament to BCE’s dedication to long-term growth.

A dividend stock to beat

BCE stock has not only sustained its dividend payments but has increased them over time. This consistency is something income investors crave, as they can rely on a steady stream of income from their investments. A high dividend yield might be attractive. But it’s only beneficial if the company can maintain and potentially increase those dividend payments. BCE stock’s track record in this area makes it a compelling option for income-focused investors looking for a blend of yield and stability.

Part of this is keeping its business strong. BCE’s ability to adapt to a changing market landscape sets it apart. The company added 52,148 new net fibre customers in Q2, representing a 38.2% increase over the previous year. This demonstrates a strong response to consumer demands and emerging trends, which is essential for long-term growth.

Despite an advertising recession across North America, BCE’s content and digital-first media strategy remains resilient. Bell Media’s digital revenue has increased by 20% over the previous year, accounting for 33% of total Bell Media revenue. This diversification of income sources adds another layer of stability to BCE’s financial performance.

Deal or no deal?

Of course, the recent 8% drop in BCE stock’s shares might raise some concerns among investors. However, it’s essential to remember that short-term market fluctuations are not necessarily indicative of a company’s long-term potential. BCE’s substantial dividend yield, coupled with its track record of consistent payments, should alleviate some of the concerns.

The BCE example underscores a vital lesson for investors seeking the right balance between dividend yield and stability. A high dividend yield can be enticing. But it should be considered in conjunction with a company’s financial health, growth prospects, and commitment to maintaining dividends. BCE stock has successfully walked this tightrope, offering investors both substantial dividends and the promise of a resilient, evolving business.

This is why BCE stock presents an intriguing case study for dividend investors. Its 7.5% dividend yield, coupled with its commitment to business growth, stability, and consistency, makes it an attractive choice for those seeking to strike the right balance in their dividend stock portfolio. Despite short-term market fluctuations, the company’s long-term success story serves as a valuable lesson in the art of balancing dividend yield and stability in your investment strategy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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