Is BCE Stock a Buy?

BCE (TSX:BCE) stock looks incredibly attractive, as shares pick up again, while the yield remains bountiful.

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It’s getting very difficult to ignore telecom titan BCE (TSX:BCE) any longer, not while it bounces back while continuing to sport a dividend yield that can only be described as rich. Indeed, the telecom scene has been battered for more than a year now, and the largest dividend heavyweight in the scene, BCE, is fresh off one of its worst plunges in many years.

Higher interest rates have been quite a prominent headwind for the telecoms. And with economic headwinds working their way through, it’s not a mystery as to why many investors were inclined to ditch BCE stock with the intention of asking questions later.

Though BCE’s headwinds were notable, I think things were overblown when shares bottomed just a few months ago. Indeed, the selling tends to overdo itself in times of fear. The negative momentum going into late-summer was quite horrific, making it a tough task to reach out for the falling knife. Still, if you bought the dip, hats off to you, as the gains are likely sustainable and perhaps the start of a move to much higher levels.

BCE stock: A dividend bargain for the ages?

Today, the stock goes for $55 and change per share. With a still-generous 7.04% dividend yield, I view BCE stock as one of the most exciting passive income plays to pick up if you’re in the belief that rates will plunge starting next year. Undoubtedly, bond yields suggest rates won’t stay elevated for the long haul. And with the Bank of Canada (BoC) recently pausing at its latest meeting, I think BCE stock is baking in some sort of pause (and cut) in rates for 2024.

What if rates don’t get cut next year?

BCE stock could easily fall back to its 2023 lows. However, I think the likeliest scenario is that BCE continues trending higher, as it wins on new wireless subscribers while bringing costs (at its media segment) under control.

Not just about rates, folks!

At the end of the day, it’s not just about interest rates. BCE’s managers have done a decent job of playing the hard hand that they were dealt. As the conditions normalize, I believe BCE stock will be back on track. By then, however, the discount in the shares will probably be (mostly) gone.

So, while the 7% yield doesn’t look as tempting given the +5% offered by certain risk-free assets (like Guaranteed Investment Certificates), as rates fall, BCE’s dividend suddenly looks a heck of a lot more attractive. And as investors pile in, the yield stands to compress as shares move higher.

The Foolish bottom line on BCE stock

I think BCE stock is a wise buy right here. Though a pullback could happen after the recent 9.2% bounce off its lows, I like the risk/reward scenario from a long-term vantage point.

The juicy 7% dividend yield is the real deal. And I think it’s likelier to be raised than trimmed, even as Canada is hit with a mild recession in 2024. At the end of the day, BCE stock is a dividend heavyweight and one of the bluest blue chips on the TSX Index.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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