There’s no shortage of dividend steals out there right now, with the broader basket of high-yielding investments still competing against those bountiful risk-free assets. With more than 5% offered (could 6% be close?) by various Guaranteed Investment Certificates (GICs), the dividend darlings of the past have simply not looked nearly as enticing as they used to when said GICs offered south of 2%. Add recession risks and telecom industry headwinds into the equation, and the broader basket of Canadian telecom stocks has seemed quite unappealing.
At the time of writing, the telecom stocks look somewhat more palatable. Though it’s too early to call that they’ve hit some sort of bottom, I think the recent wave of relief could easily continue going into the holiday season.
BCE stock: Could the risk/reward scenario on shares be too good to pass up?
Even if Santa Claus doesn’t arrive with gains for investors of all ages, the risk/reward scenario in names like BCE (TSX:BCE) just seems too good to pass up. For value-oriented income investors with a long-term time horizon, I’d argue the risk of not buying any shares amid the historic funk is greater than being dealt another leg of downside.
Either way, BCE stock (and its telecom peers) doesn’t look all that cheap right here. At writing, BCE goes for over 22 times trailing price to earnings (P/E). Indeed, there’s still some premium associated with the stock despite being down over 26% from its all-time high. With a bountiful 7.14% dividend yield and a low 0.52 beta (which entails a low correlation to the rest of the market), I’d argue BCE stock may be able to keep its recovery going strong, even if the markets were to falter into year’s end.
Can BCE keep up as competition picks up?
It’s not just the Bell Media division that could act as a sore spot for the legendary telecom behemoth that is BCE. With a massive $49.5 billion market cap, the wireless and fibre market is arguably BCE’s to lose. Personally, I think BCE can keep its edge, as it looks to keep investing heavily in fibre and wireless. As it turns out, it’s not so easy to erode the dominance of a Big Three telecom. If anything, higher costs of borrowing may help keep potential new rivals at bay.
Indeed, Quebec-based regional telecom player Quebecor (TSX:QBR.B) could find itself nipping on the heels of the Big Three at some point over the next 10-15 years. Though I’m a big fan of Quebecor’s management team and do think the firm has what it takes to be that disruptive fourth national carrier in Canada’s telecom scene, I think real disruption will take well over three, perhaps even five years.
In the meantime, I expect the Big Three to continue flexing their muscles. Of the three, I like BCE the most, and it’s not just about its fat dividend yield. The firm has done a great job of “leaning out” over the past year. Once the economy heats up again, I’d look for newfound efficiencies to help drive impressive earnings growth for years to come.
The bottom line on BCE stock
BCE won’t be a smooth ride higher from here. If you’re keen on the stock, I’d nibble a quarter position here and be ready to double down should a near-term pullback to $52 per share be in the cards.
