BCE Inc (TSX:BCE) is rapidly acquiring characteristics that make it a stock dividend investors can’t ignore. It’s cheap, the company’s profitable, and best of all, it has a high dividend yield. If you buy BCE shares today, you’ll get a 7.5% yield assuming the payout doesn’t change. So, you could get an extra $7,500 per year in dividend income if you invest $100,000, if the dividend doesn’t change. Historically, BCE’s dividend has risen (i.e., has changed in a good way), but there are some trends in the business that suggest dividend growth will be harder going forward.
Financials
To take a big picture perspective on BCE’s business, we could say that it is a highly profitable company, but not a growing one. While the company is highly profitable, with a 10% net margin and a 12.5% return on equity, it has negative growth rates. In the trailing 12-month period, revenue grew just 3.5% and earnings fell 19.8%. In the most recent quarter, earnings fell 40%. The decline in earnings was largely due to rising interest rates. As a Telco, BCE has high expenses, fixed and variable costs. All of these have to be financed by debt, which is getting more expensive. In its 2022 annual report, BCE lists a number of different debt obligations, many of which are floating rate. That debt has already seen its costs increase. Also, BCE’s fixed rate debt will likely be refinanced at higher rates when it comes due for refinancing. So, interest rates are a real headwind for BCE at the moment.
High yield
Despite BCE’s cost and debt issues, the stock’s yield is undeniably high at the moment. At 7.5%, the yield is among the highest seen among TSX large caps. Additionally, it has grown over time. Over the last five years, BCE’s dividend has grown by 11.5% CAGR (“CAGR” is a compounded annual growth measure). If BCE can keep up the growth, then today’s investors will see a double digit yield-on-cost in short order. However, keep in mind the interest rate issues mentioned above: this stock’s dividend growth is likely to be slower in the future compared to the low-rate past.
Extremely cheap valuation
A final thing worth keeping in mind about BCE stock is that it has a cheap valuation. At today’s prices it trades at:
- 16 times adjusted earnings.
- 20.5 times GAAP earnings.
- 1.9 times sales.
- 2.7 times book value.
- 6.2 times operating cash flow.
This is a pretty cheap valuation, although not exactly dirt cheap. I’d say value investors would be wise to research BCE Inc stock.
So, is it a buy?
Taking everything into account, I’d say BCE Inc stock is worth holding in a diversified portfolio. It doesn’t have enough going for it to make it a massive overweight position, but it is basically investable. Particularly if you have high cash flow needs, this stock could do what you want it to. I would not expect massive capital gains in the near term, though.
