1 Dividend Stock Down 31% to Buy Right Now

Buying the dip has its advantages – lower downside risk and higher probability of growth. In a dividend stock, you can lock in a higher yield.

| More on:
Volatile market, stock volatility

Image source: Getty Images

The interest rate hike that began in April 2022 has pulled down the price of this dividend stock by 31%. It is now trading below its pandemic low. It is a once-in-a-decade opportunity to lock in a juicy dividend yield of 7.85%. How much is a 7.8% yield? If you invest $10,000 now, it can give you $785 every year for several decades. And this is just the tip of the iceberg. The dividend stock I am referring to has more to offer than just a $785 annual payout.

A dividend stock down 31% 

The stock in question is the telco BCE (TSX:BCE), which is transitioning from a telco to techno. As we enter the 5G era, radio stations are gradually declining. Digital media is taking over. BCE is changing with the trend. While it has significantly completed its 5G infrastructure rollout, it is now upgrading its business through restructuring. 

In the coming 10 years, you could see cars, buildings, drones, traffic signals, cameras and any other thing you can think of connected to the cloud. And it will not just be connected, but it will also perform artificial intelligence (AI) at the edge. And with so many devices simultaneously connected, the internet will become the base framework for an advanced cloud network. 

But before this transition, BCE will have to take a step back. This means letting go of declining assets like radio stations and electronics stores and focusing on the growing businesses of cloud and security services, and digital transformation. This restructuring will bring layoffs and a one-time expense of severance pay. On top of this, high-interest expense continues to put pressure on its earnings. Hence, BCE expects a decline in its 2024 earnings and free cash flow and has also slowed its dividend growth to 3.1% from 5% last year. 

The interest expense burden has pulled the stock down 31% to $50.83, closer to its 52-week low. 

Why is this dividend stock a buy right now? 

This dip is an opportunity to grab a fundamentally strong stock riding the secular growth trend of 5G. Once the Bank of Canada begins interest rate cuts, you could see some recovery in the stock. BCE has been growing dividends for 15 straight years. It even grew dividends before that but paused the growth during the 2009 Global Financial Crisis. 

When the interest rate falls, it will free up more cash and help BCE accelerate its dividend. Also, the proliferation of devices connected to the internet could generate more subscriptions and revenue opportunities in the medium term, further supporting dividend growth. 

Three types of returns this stock can give

Now is the right time to invest a little over $10,000 and buy 197 shares of BCE while it trades closer to $50. It can give you three types of returns: 

  • Firstly, the risk of the stock price falling further is less, and the probability of the stock rising is higher. When operational efficiency from the restructuring kicks in, your $10,000 could grow by 20-30%, earning you $3,000 in capital appreciation. 
  • Secondly, BCE could continue growing its dividend by 3-5% over the next 10 years, increasing the $785 dividend to $1,025 at 3% average dividend growth and to $1,219 at 5% growth. 
  • Lastly, BCE offers a dividend reinvestment (DRIP) option whereby it uses the dividend money to buy more income-generating shares at a discount with no brokerage fees. If you opt for a DRIP, your 197 shares could increase to 383 shares and give you $1,995 in annual dividends by 2024 at a 3% dividend growth rate. 
YearBCE Stock Price
3.2% CAGR*
Annual InvestmentBCE DRIP SharesBCE Share CountBCE Dividend per share (3% CAGR)Total Dividend
How BCE DRIP can compound your dividend income

Now is the time to buy the dip and lock in a 7.8% yield.

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 Puja Tayal 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.

More on Dividend Stocks

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

REITs with modest amounts of debt, like Killam Apartment REIT (TSX:KMP.UN), can be good investments.

Read more »

Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

Some of the smartest buys investors can make with $500 today are stocks that have upside potential and pay you…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend Stocks to Buy in April for Safe Passive Income

These TSX Dividend stocks offer more than 5% yield and are reliable bets to generate worry-free passive income.

Read more »

protect, safe, trust
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $1,000

If you've only got $1,000 on hand, that's fine! Here is how to make a top-notch, passive-income portfolio that could…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »

woman analyze data
Dividend Stocks

My Top 5 Dividend Stocks for Passive-Income Investors to Buy in April 2024

These five TSX dividend stocks can help you create a passive stream of dividend income for life. Let's see why.

Read more »

investment research
Dividend Stocks

5 Easy Ways to Make Extra Money in Canada

These easy methods can help Canadians make money in 2024, and keep it growing throughout the years to come.

Read more »