BCE (TSX:BCE) stock’s dividend yield makes it a must-watch stock as it continues to drop like a rock tumbling down a seemingly endless hill. Undoubtedly, it’s been tough to buy the dip in the name, as bad news has continued to pile up for the telecom and media heavyweight. From mass layoffs to less-than-stellar quarterly results, BCE has been a rough ride for investors. For many, the ride has proven rough enough to warrant throwing in the towel.
Undoubtedly, BCE stock has been a turbulent ride, even before the collapse of 2022 and 2023 (and thus far in 2024, with shares down 9% year to date). Over the past five years, the stock has lost around 17% of its value. And over the past 10 years, shares are basically flat. Undoubtedly, if BCE stock struggled to sustain capital gains over an extended period, what chance does it have in the next 10 years, as new technologies such as artificial intelligence come to be?
Though the 5G wireless tailwind (is it still in effect?) could still pave the way for impressive wireless growth as new wearable devices hit the mainstream (spatial computers and AR/VR headsets, anyone?), BCE has some issues it needs to address as it looks to restructure.
Fortunately, relief could be on the way as interest rate cuts begin to flow in. And though some may be inclined to question the safety of BCE’s long-time dividend, which currently yields almost 8%, I’d argue that though cash flows aren’t in an ideal spot, dividend hikes (as opposed to cuts) may very well be the likelier over the next few years.
Tough times could continue
BCE’s been through trying times before, but arguably, things could improve before they get more dire as Canada looks to shrug off what remains of inflation and all the macro pressure points accompanying it. At writing, BCE has a pretty stretched free cash flow payout ratio. And though some sort of dividend reduction would help BCE shore up some greater financial flexibility, I’d argue that there exist many pathways in which the firm can recover without having to take its dividend to the chopping block.
Remember, a lot of BCE shareholders are hanging on for dear life, primarily for the dividend. If BCE breaks these investors‘ hearts, it will be very hard to win their trust and respect back.
Some of the bears out there think the dividend could be at risk if the free cash flow trajectory can’t pick up. Although I wouldn’t rule out a potential partial dividend cut at this juncture, I do view the stock as a great value if you’re willing to hold through what is sure to be a choppy next couple of years.
The bottom line on BCE stock
In three years, I view rates being considerably lower. And as BCE looks to spend more on its wireless infrastructure, I’d be quite shocked if BCE stock isn’t considerably higher in three years from now. Of course, bottom fishing is hard and painful. With BCE stock at lows not seen in many years, dip-buyers will be catching a blue-chip falling knife that could continue cutting deep.
Though it’s good to hope for a sustained dividend, I think it’s a better idea to view BCE as a deep-value play whose payout may or may not survive the onslaught. That way, you won’t be discouraged if worse comes to worst and the firm has to trim its payout. If it helps bolster the recovery trajectory, perhaps some investors will be all for it.
