The telecom stocks seem to be intriguing income investments, with rates expected to fall and the economy expected to experience some sort of so-called soft landing. Indeed, some of the optimists out there may even look for no landing, as the Bank of Canada looks to deal with elevated inflation in a gentle manner. In any case, it’s going to be a tough year for investors should expectations fall short. Additionally, a period of consolidation in the first half of 2024 shouldn’t be out of the ordinary, given just how sudden 2023’s year-end bounce was.
Undoubtedly, the rise of generative artificial intelligence (AI) could provide a huge productivity boost to the economy. But at this juncture, it seems like investors are expecting too much, too soon, from the innovative technology. In any case, I’d continue to stick by good, old defensive dividend plays. In the telecom scene, I view many dividend opportunities for investors who want the perfect balance of dividends and dividend growth.
At the end of the day, the 5G boom is a huge secular tailwind for the telecoms, even if there’s a recession to get through. Further, Canada’s telecom scene isn’t all too crowded these days. A lack of options for Canadian consumers means more power in the hands of the Big Three telecom giants.
Following Rogers Communications’s (TSX:RCI.B) acquisition of Shaw Communications, Canada’s telecom scene has never looked more powerful. Arguably, Shaw, on its own, was an already dominant firm in the cable scene. In this piece, we’ll have a look at Rogers and how it stacks up against fellow Canadian telecom rival BCE (TSX:BCE).
Rogers Communications
Rogers Communications is a robust telecom titan that became a heck of a lot stronger after its acquisition of Shaw. Indeed, the merger was met with harsh criticisms. And though Rogers may do its best to keep prices competitive, I think it’s just a matter of time before price hikes kick in, and Canadians have few alternative options but to pay up when it comes to their lofty telecom bills.
Rogers stock sports a 3.12% dividend yield at the time of writing. It’s not the largest of the batch, but I think it’s poised to grow by the most. So, if you value dividend growth and upside potential, I view Rogers as nothing short of intriguing for the income-focused investor.
BCE
Up next, we have BCE stock, a more popular option that has a dividend yield of 6.98%. That’s more than double that of Rogers Communications’s yield. Indeed, BCE is a telecom and media firm that’s a top pick for many retirees. Though the dividend is safe, and perhaps even growthy, should Canada navigate a recession effectively this year, investors should brace themselves for huge swings in both directions. Right now, the stock is trying to recover after bottoming out late last year.
At 22.9 times trailing price to earnings, BCE stock looks fairly valued. However, as rates begin to retreat and settle in the coming years, I think BCE’s nearly 7% yield won’t be around forever.
So, if you like the firm and need safe and bountiful passive income, I’m not against buying BCE stock here. Just be ready for wild swings if central banks don’t cut as quickly as markets expect! If we get fewer than three rate cuts this year, markets could swing violently, and BCE stock could realistically revisit its multi-year lows at nearly $50 per share. If it does, I’d be ready to buy.
Better buy for 2024?
I think you can’t go wrong with either play. However, I like BCE stock’s dividend yield enough to prefer it to Rogers at this juncture.
