BCE (TSX:BCE) is up about 10% since early October. Investors who missed the bounce are wondering if BCE stock is still undervalued and good to buy for a self-directed Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
BCE share price
BCE trades near $55 at the time of writing compared to $50 a few months ago, but the stock is still way down from $74 at one point in 2022.
The downward trend through much of the past two years was largely driven by a steady increase in interest rates in Canada and the United States, rather than by any major operational issues at the communications giant.
High inflation forced the Bank of Canada to aggressively raise interest rates to cool off the economy and bring the jobs market back into balance. Inflation is down from more than 8% in June 2022 to 3.4% as of the December 2023 report. It takes time for interest rate hikes to work their way through the economy, but it looks like the next move in rates will likely be downward as the central bank gets inflation under control and seeks to avoid pushing the economy into a deep downturn.
BCE has a large capital program that is partly funded using debt. Higher borrowing costs reduce profits and can have an impact on how much cash is available for dividends. The company is expected to report a decline in adjusted earnings per share for 2023 compared to 2022, due to the impact of higher borrowing expenses and some challenges in the media division where ad revenues slipped in the TV and radio segments.
The overall results, however, should be solid. In its 2023 guidance, BCE anticipated finishing the year with revenue and free cash flow growth.
Dividend
The dividend should be safe for 2024, even in a challenging environment. BCE has actually increased the payout by at least 5% in each of the past 15 years. At the current share price, investors can get a 7% dividend yield from BCE stock.
Should BCE be on your RRSP buy list today?
BCE pays an attractive dividend that should continue to grow. The company gets most of its revenue from essential mobile and internet services, so cash flow should hold up well even during a recession. Ongoing volatility, however, is expected until there is clear evidence the Bank of Canada is going to begin cutting rates.
That being said, BCE is probably still oversold at this level and you get paid well to ride out any new turbulence. If you have some cash to put to work in a self-directed RRSP targeting high-yield dividends, BCE deserves to be on your radar.
