BCE (TSX:BCE) is down 23% from the 12-month high. Investors seeking high-yield passive income from top TSX dividend stocks are wondering if BCE is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) portfolio.
BCE share price
BCE trades near $50.50 per share at the time of writing compared to more than $65 last spring and as high as $74 at one point in 2022.
Rising interest rates in Canada are largely to blame for the decline in the stock price over the past two years. BCE uses debt as part of its funding strategy to pay for its large capital program. The company spends billions of dollars every year on network upgrades, including 5G and the expansion of fibre optic lines to its customers’ premises.
These initiatives should drive long-term revenue growth as households and businesses consume more data. Higher borrowing costs, however, reduce profits and can cut into the cash that is available for distributions.
BCE is also facing some challenges in its media division. Falling advertising revenues in the television and radio segments have led to staff cuts. BCE reduced its headcount by 1,300 in 2023 and recently announced another cut of 4,800 positions in 2024.
Costs connected to the staff reductions will impact results in 2024, but the picture should be better next year with the drop in expenses. BCE is also selling more than 40 radio stations as part of its restructuring efforts in the media group.
Dividends
BCE increased the dividend by 3.1% for 2024. This is lower than the 5% average over the previous 15 years, but investors are still getting a higher payout. The increase suggests management is comfortable with the cash flow outlook over the next few years, and the distribution should at least be safe at this level.
BCE gets most of its revenue from its internet and mobile subscription services. These are required by businesses and households regardless of the state of the economy, so the stock should be good to own through an economic downturn.
At the current share price, the dividend provides a 7.9% yield.
Should you buy BCE today?
Markets expect the Bank of Canada to begin cutting interest rates at some point in 2024. As soon as that happens, BCE could catch a tailwind as investors feel more comfortable that borrowing costs will decline. In addition, most of the restructuring that is occurring this year should improve results in 2025.
Patience is required, and further downside is possible in the near term, but BCE already looks oversold, and income investors can now get a very attractive yield. If you have some cash to put to work in a TFSA targeting passive income, BCE deserves to be on your radar.
