Down 25%, This Magnificent Dividend Stock Is a Screaming Buy

BCE (TSX:BCE) stock has faced a lot this last year, leading to a lower dividend increase of just 3.1%. But that could soon be in the past.

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There are few Dividend Aristocrats out there that you can look to and see an incredible decrease in share price of 25%. And yet that’s exactly what we’re seeing with BCE (TSX:BCE) stock right now. The company has seen its shares drop further and further after earnings and outside competition are weighing on the stock.

Yet if you’re looking at BCE stock for its dividend, then now might be the exact right time to buy.

First, why the stock has slowed

Before we get into why it’s a great idea to buy, it’s important to look at why BCE stock has slowed in the first place. In recent years, shares and dividend growth have both slowed. The 2024 increase is now significantly lower at 3.1% compared to its historical average. This has raised concerns about the future dividend increases.

What’s more, the company holds a high payout ratio. This measures the portion of earnings distributed as dividends to shareholders. This is now at 169%! Far higher than the ideal of around 50%. Then we need to add that there’s future competition as well.

The telecommunications industry is facing intense competition and new technological challenges. BCE stock needs to be able to maintain its market share in all this, and increase its profitability in this uncertain future. And this again could weigh on its dividend policy.

Still, there are some strong points

When it comes to the dividend, what investors will likely latch onto are the company’s history. In this case, BCE stock is a stellar choice. It currently offers a 7.96% dividend yield as of writing. That’s far higher than the average on the TSX today.

What’s more, BCE stock has a huge track record of increasing its dividends. It has averaged around 13% in the past as well! And this has been quite attractive for passive income seekers. And as an established company, it doesn’t look like a dividend is likely to disappear any time soon.

And there are certainly benefits that BMO stock is into. This includes its fibre network improvements which should lead to further market share gains and margin improvement. It also includes increased immigration into Canada, which will benefit all wireless companies. And finally, its free cash flow generation should also improve as major network spending winds down.

What it will take

So, what will it take to get BCE stock back to its all-time highs? Quite a bit, I’m afraid. But it’s certainly not impossible. There is certainly more competition with companies like Rogers and Shaw on the table. Regulations could also limit profitability, and its declining landline and video services could hinder growth.

However, BCE stock can combat this by countering competition. It needs to rely on its superior service and innovation, as well as strategic acquisitions and partnerships to get ahead. Furthermore, adapt to technological advancements and successful navigate that regulatory environment.

This could also involve expanding into new areas through acquisitions, and in turn improving profitability. If this is the case, the company could continue its history as a dividend growth, and increase the dividend by those enormous amounts once more.

So, is BCE stock? Certainly, if you’re a long-term investor. And with a dividend yield near 8%, it’s a great time to buy.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Rogers Communications. The Motley Fool has a disclosure policy.

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