BCE (TSX:BCE) stock used to be a staple for any passive-income-oriented portfolio. With shares fresh off one of their worst declines in years (BCE stock is now down around 29% from last year’s peak of $73 and change), many retirees and income seekers may be wondering if it’s time to double down or throw in the towel.
Indeed, the stock just seems to keep going down, sinking right through key support levels, like the one in the mid-$50 range, where BCE stock spent most of 2020. Today, shares go for $52 and change after ricocheting off a low of around $50 per share. Indeed, it’s tough to know for sure if the pain is over, especially as a recession looms. During severe recessions, the telecom titans could shed close to half of their value from peak to trough. At this juncture, it’s tough to tell where shares of the dividend dog go from here.
If you’re looking for a passive-income play to hang onto over the next two to three years, though, I think BCE stock is a screaming buy. Indeed, a price-to-earnings (P/E) ratio over 20 times does not scream bargain. However, I think BCE stock’s recovery could be quite swift once the worst of recession fears come to pass.
BCE stock’s 7.5% dividend yield looks bounteous
Further, the 7.5% dividend yield looks to be a shining main attraction to the stock. If worse comes to worst, the company’s dividend commitment could severely limit the firm’s financial flexibility. However, I do think BCE can make its massive payout work, as it looks to trim away at other areas of the business to maintain enough cash flow to keep its wireless business going strong.
Over the past several quarters, BCE has done its best to lean out with cuts in the media division. More recently, Bell Media inked a deal to purchase Outfront Media’s Canadian operations in a deal worth $410 million. The deal would give Bell Media significant exposure to the billboard market. Indeed, ad displays are a pretty boring business. And though digital ads are the place to be, I do think Bell Media is getting a pretty decent bang for its buck with the deal.
Either way, don’t expect such a deal to be a needle mover for BCE. At the end of the day, it’s wireless that’s key to next-level growth for BCE. Bell Media stands out as more of a question mark for the firm as we move through tougher times.
The Foolish bottom line on shares of BCE
I’m in no rush to back up the truck on BCE stock, even after its painful slump. A recovery could take many quarters to pan out. And though the dividend is safe, I think that the risk of capital losses could drag total returns (capital gains + dividends) closer to zero. While there’s a good chance shares could prove undervalued, I’d much rather sit on the sidelines, perhaps waiting for a round of capitulation that puts the dividend yield above the 8.5% mark at some point over the medium term.
Indeed, by waiting, you could miss the boat entirely. If you’re keen on the name, I’d not be against averaging into a full position over the next year. I think that may be the most prudent way to bet on the firm as its selloff continues.
