Telecom Titans: Canada’s High Dividend Yielding Communication Stocks

Telecom stocks such as BCE offer exposure to high dividend yields, stable and resilient results, and security.

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Contrary to what many investors might think, telecom stocks are more than just dreary, boring stocks. In fact, history shows that these stocks are anything but boring, with juicy, reliable dividends and solid long-term performance.

In this article, I will explore two telecom stocks that are yielding well over 6%.

BCE: 7.37% dividend yield

BCE Inc. (TSX:BCE) is Canada’s largest telecom services company. It boasts an unmatched network, with the fastest and farthest-reaching broadband internet connection. Also, BCE has a leading position in fibre optics, which is expanding rapidly, as well as in 5G, which is on track to grow to 85% penetration in Canada.

At this time, BCE stock is yielding a very generous 7.37%. This is a function of the times we’re in as well as the fact that the telecom industry is highly capital intensive. In fact, BCE spent over $5 billion of its $8.3 billion of operating cash flow last year on capital expenditures. These expenditures are lofty, but necessary as the company builds out its infrastructure of leading-edge networks. This is, in fact, one of BCE’s competitive advantages, as its pure fibre and 5G networks boast the fastest speeds in the industry.

Rising interest rates are also hitting BCE this year. In fact, in the first six months of 2023, interest expense increased 33% to $703 million. The magnitude of the increase is big, but one has to keep in mind that BCE has a lot of financial strength behind it. For example, the company currently has $4.4 billion in liquidity. Also, in the first six months of 2023, revenue increased $3.5 billion to $12.1 billion and net earnings came in at $1.2 billion.

Along with all of this, we have BCE’s dividend history, which is quite exemplary. In fact, the dividend is 223% higher than in 2000, and it has grown at a compound annual growth rate (CAGR) of 6.22%. Looking at BCE’s stock price graph, we can see that it has returned 100% over the last 17 years.

Telus stock is yielding 6.32%

Telus Corp. (TSX:T) is a Canadian telecom company that also has a couple of other segments which provide the telco with a little more diversity and growth, Telus International and Telus Health. The company’s history is strong, with a rapidly growing subscriber base.

This has driven revenue to be 30% higher today than five years ago, representing a five-year compound annual growth rate (CAGR) of 5.5%. It has also driven a rapidly growing dividend. In fact, in the last 10 years, Telus’ dividend has grown at a CAGR of 8% to the current $1.45 per share. Currently, Telus’ dividend yield stands at 6.32%, and Telus stock has returned more than 100% over the last 17 years.

Like BCE, Telus has a high debt level and is experiencing rising interest costs. But unlike BCE, Telus saw significant free cash flow growth of 36% last quarter. Also, EBITDA increased 13% and capital expenditures have come down. Also, Telus continues to benefit from its investment in technology platforms, Telus Health and Telus International. While Telus International has been hit by a weaker macroeconomic environment, Telus Health continues to grow. In Q2 2023, Telus Health achieved an 11% increase in EBITDA.

Bottom line

Looking ahead, we can safely say that both BCE and Telus are dividend stocks that will likely continue to serve up attractive dividends as they benefit from the very lucrative telecom industry.

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 Karen Thomas has a position in BCE. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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