It has already been a difficult year for BCE (TSX:BCE) stock, with shares falling again and again as bad news after bad news has hit the company. And the hits just kept coming this week, when shares of BCE stock fell by a further 4% on Monday.
What happened
It looks like the recent price drop isn’t from anything the company did in particular. It seems to merely be a continuation of the rough earnings report the company reported back in February. During that time, the company saw profit decline and cut its workforce by 9%, leading investors to be concerned about the future of BCE stock.
Yet it’s also a time when there continues to be a broader market sell-off as well. Interest rate concerns continue, with investors fearful and greedy over stocks at the same time. While one stock might soar after earnings with strong guidance, another will plunge from the reverse.
But there seems to be larger issues at play here as well. Both positive and negative. So what investors should really be asking themselves about BCE stock is whether it’s time to be greedy at these levels, or fearful.
A high dividend, but is it enough?
The big point that investors might look to is whether or not BCE stock can manage to keep up with its stellar dividend growth. And here analysts aren’t so sure that can last. The company has seen its traditional businesses such as wireline and wired phones decline. What’s more, the wireless market is saturated, and this makes it very difficult to attract new customers. Nor have regulations been favourable. BCE stock has been forced to share its own infrastructure to create more competition, while also being hindered from global competition.
This has impacted dividend-focused investors, as the company’s historically strong growth is likely to slow. In fact, it could even drop to a 2% annual growth rate permanently in the next few years. And with the stock price down, should we see dividend increases remain at these low levels, long-term investors may decide now is the time to get out.
That being said, the current dividend yield of 7.96% looks incredibly attractive. What’s more, BCE stock still holds the top spot in terms of market capitalization. And with cost-cutting measures underway, the company could soon improve its financial health. That could help sustain dividends in the future.
Is it worth it?
Overall, BCE stock has seen steady growth in its dividend yield over the long term. Its stock price has also increased significantly since its initial public offering (IPO) in 1983. However, it has also gone through volatility and decline, and made it to the other side. This includes the dot-com bubble burst, as well as the 2008 financial crisis.
Yet through it all, BCE stock has managed to increase its dividends. From 1998 to 2015, for example, it delivered an impressive average annual growth of 13.7%! While this is likely to slow, with 2024 seeing growth at 3.1% in its dividend, it’s likely to pick back up in the future.
And management certainly thinks there is a strong future. Several C-Suite executives were recently awarded shares after the price drop on earnings. So they likely believe the cost-cutting measures will reap rewards in the future, including dividends.
Should the company strengthen its balance sheet, invest in network upgrades, and even pursue its own acquisitions, now could be an excellent time to pick up this strong long-term dividend provider.
