Telecom stocks cannot catch a break these days. Not while interest rates continue to ascend. Though rates may be closer to a peak than a trough, it’s hard to go against the grain with any telecom stocks right now. Even the ones south of the border have been under pressure.
Though there may be cheaper multiples and higher dividend yields to be had in an American telecom play like Verizon (NYSE: VZ), which is in the midst of a multi-year funk with a dividend yield that’s sitting at around 8.46%, I still think the Canadian telecom plays are less risky. Further, their dividends may be stable as economic conditions continue to decay from here.
Recession or not, there’s no denying that the economy is experiencing some sort of slowdown. The TSX Index has already likely reflected such, though. The real upside could lie in a softer-than-expected landing in 2024. Of course, anytime we hear the term “soft landing,” the stakes could be higher if the landing proves rocky. Indeed, chasing stocks on pops doesn’t seem like a great idea right here. Not when telecom stocks are trading at close to the cheapest they’ve been in years.
There are serious challenges for the telecom titans. However, some of the better-run ones, I think, could do quite well from here, as they sail into coming quarters of fairly low expectations.
So, should Canadians opt for a Canadian telecom or look to a higher-yielding play, like Verizon, south of the border?
BCE and Telus stock
BCE (TSX: BCE) and Telus (TSX: T) are some serious dividend heavyweights in Canada, with yields of 7.4% and 6.35%, respectively, at the time of writing. Indeed, you don’t need to venture into the U.S. market for such bountiful payouts. Further, Canadian dividends may be preferable for non-registered accounts (or Tax-Free Savings Accounts), given the impact of U.S. withholding taxes.
Additionally, I like the Canadian telecom industry more, given competition is less fierce. Fewer players, fewer aggressive promos, and all the sort have concentrated the power in the Big Three telecoms. BCE and Telus are the top two of the Big Three. And I think they’re compelling buys as shares continue to tread water. I have no idea when telecom plays will catch a break.
Regardless, one has to think current valuations (and yields) are enticing enough to jump in here, even if it means dealing with another year or two of pain.
If you seek yield, go for BCE stock. Otherwise, Telus seems like an intriguing balance of growth, value, and dividends at just shy of $23 per share.
Verizon stock
Should you chase a higher yield south of the border with a name like Verizon, which sports a towering yield after its spill to $30 per share? Though there’s a lot of value to be had here, I don’t think Verizon is much more compelling than the likes of a BCE or Telus.
Further, the currency exchange rate isn’t all too great for Canadians these days. All considered, Verizon stock seems less appealing than the Canadian telecoms at this juncture. Canada’s telecom industry landscape also looks more enticing for investors looking to play the long game.
