BCE (TSX:BCE) has been a favourite among dividend investors for decades. The steep decline in the share price over the past six months has contrarian investors wondering if BCE stock is now oversold and good to buy for a portfolio targeting passive income and total returns.
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BCE overview
BCE is Canada’s largest communications company with a market capitalization near $49 billion. The stock currently trades close to $54 compared to $65 earlier this year.
The business has changed considerably in the past 20 years, as BCE transformed from being a wireline phone company to a mobile and internet giant with a large media group. These days, any time a person in Canada makes a call, sends a text, checks e-mail, streams a movie, listens to the traffic report, or watches the news there is a good chance that one of BCE’s assets is involved somewhere along the line.
The company continues to make the investments needed to ensure customers have the broadband they need while helping protect BCE’s competitive position. BCE spent roughly $5 billion last year on projects that include the 5G mobile network and running fibre optic lines to the buildings of its customers.
BCE Q3 2023 earnings
BCE delivered solid third-quarter (Q3) 2023 results, despite the challenges facing the media group. Operating revenue rose slightly to $6.1 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 3.1%. Adjusted net earnings slipped 7.5%, however, partly due to higher borrowing costs caused by the steep increase in interest rates over the past year.
Strength in the core mobile and internet businesses helped offset a 5.2% decline in advertising revenue in the media group. Customers are cutting back ad spending on TV and radio platforms. Total digital revenues rose 26% in the quarter compared to last year, supported by streaming subscription growth.
BCE confirmed its 2023 guidance. Revenue growth is expected to be 1% to 5%. Free cash flow growth is targeted at 2% to 10%.
BCE’s dividend
BCE raised its dividend by at least 5% in each of the past 15 years. The solid performance of the overall business in 2023 should provide support for the distribution heading into 2024. At the current share price, investors can get a 7.1% dividend yield from BCE stock.
Is BCE a buy today?
BCE’s mobile and internet divisions provide services that households and businesses need in all economic conditions. The pain from rising interest rates should be near its peak, as rates are expected to begin falling again at some point next year. As soon as the Bank of Canada signals rates are coming down, BCE’s share price could surge.
At this point, the pullback appears overdone, and investors get paid well to ride out any additional turbulence. If you have some cash to put to work, BCE deserves to be on your radar right now.
