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.

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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
2024$50.00$10,000.00197.0197.0$3.99$786.03
2025$51.60$786.0315.2212.2$4.11$872.21
2026$53.25$872.2116.4228.6$4.23$967.71
2027$54.96$967.7117.6246.2$4.36$1,073.52
2028$56.71$1,073.5218.9265.2$4.49$1,190.73
2029$58.53$1,190.7320.3285.5$4.63$1,320.56
2030$60.40$1,320.5621.9307.4$4.76$1,464.33
2031$62.33$1,464.3323.5330.8$4.91$1,623.54
2032$64.33$1,623.5425.2356.1$5.05$1,799.81
2033$66.39$1,799.8127.1383.2$5.21$1,994.95
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.

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