BCE (TSX:BCE) is a telecom stock and former dividend darling that’s been taking hits to the chin of late. The stock caught a bid higher back in the latter half of 2023, only to return to the retreat. Year to date, the stock is down around 2%. And though shares of BCE seem to rhyme with the many ailing telecom stocks in the States, I believe that BCE has distinct advantages to its hard-hit peers south of the border.
There’s not as much competitive pressure in Canada’s telecom scene, allowing industry top dogs to charge rates that make it hard for Canadian consumers to shop around for. Undoubtedly, I’d much rather be in a Canadian telecom than one that’s under pressure in the U.S. market.
After a bit of industry consolidation, it seems like there’s more power in the hands of the Canadian telecom giants. Though we’d all love for greater competition, I realistically don’t see any serious national rivals coming to be in the near term. It could take many years before a fourth major wireless carrier comes to be. And as the 5G boom continues, I believe that the fortune will continue to favour the heavyweights on the scene.
BCE stock may not be a top pick for retired dividend investors anymore — not after its bearish slump. However, as rates begin to fall again, I think BCE stock stands out as a potential contrarian top pick for income investors.
Reason #1: BCE Stock could get a jolt as rates finally fall
High interest rates are a pain point for many companies, especially those that need to borrow a lot to spend on infrastructure. Indeed, the utilities and telecom plays come to mind as industries poised to hurt as rates ascend. The good news is the Bank of Canada may have what it takes to cut rates in 2024. Though the rate cuts may be dispersed through a few years, I still view the falling rate trend as a big plus for firms like BCE.
At today’s depths, BCE stock stands out as close to the cheapest it’s been in many years. And though the 7.3% yield is enticing, investors can expect the occasional dividend hikes, as the company attempts to gain ground again.
Reason #2: The stock’s dividend is best in class!
As the stock falls further, the dividend yield stands to get even more towering. Undoubtedly, it would be nice to have BCE stock yield 7.5% again or even 8%.
Though it’d take a lot more than broader market pressures to send BCE stock to such depths (think below the $50 per share mark), I view the dividend’s size, growth potential, and security as one of the primary reasons to hang onto BCE stock amid this historical moment of turbulence. Will investors be rewarded this year?
Only time will tell. Regardless, it’s hard to argue that BCE’s dividend is not among the juiciest on the TSX Index these days.
In the coming months, we’ll get a better grasp of how management is dealing with harsh industry tides. I think they could surprise many of the overly bearish in the quarters to come. The stock has been cheap for quite some time. Now, I think it’s starting to get dirt cheap.
