Is BCE’s Dividend Under Pressure? And Is the Stock a Buy?

BCE (TSX:BCE) stock is a deep-value buy for value investors brave enough to pursue the dividend.

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BCE (TSX:BCE) stock’s 8.2% dividend yield (and no, that’s not a typo) is becoming too large to ignore anymore. It seems like any time you check up on the stock, the dividend yield has gotten higher while shares have sunk further.

With shares sinking below the $50-per-share level, the telecom behemoth and long-time passive-income investor favourite seems to be at risk of falling below its long-term level of support, if it hasn’t already. In terms of technical support levels, you’ll have to go all the way back to 2014.

BCE stock: Technical support nearing?

As BCE stock looks to fall below 10-year lows, the question lingers as to when the dividend champ will bottom out and how fast its recovery will be for those who catch the falling telecom titan before it ricochets.

The good news is I think there’s a pretty robust level of technical support in the high-$40 range (let’s say $47-49). Of course, you’ll have to have a glance at the longer-term chart to see the floor of support. If the level holds up, BCE stock may prove to be an intriguing buy right here. In any case, the stock’s dividend is bound to draw an increasing amount of attention from dividend and deep-value seekers alike.

Confidence has been tested

After having lost a third of its value in around two years, questions linger as to whether or not BCE can still be considered a safe and sound blue chip. Indeed, the mass layoffs and waning free cash flow levels have been a concern for many.

And though many analysts may be inclined to hold off, with more of a “wait-and-see” approach, I think that those enticed by the dividend yield should think about nibbling in sooner rather than later. Undoubtedly, a dividend reduction is a growing possibility with every less-than-stellar quarter the firm delivers.

BCE stock: Worth the plunge?

Though it’d be lonely to be a contrarian with shares of BCE right now, I think that growing demand for 5G wireless (and 5G+) could help jolt growth on the other side of this macro headwind-filled climate. In a prior piece, I highlighted that the payout ratio was getting a tad stretched but that management would likely do its best to trim away at debt while also shoring up liquidity elsewhere. Indeed, mass layoffs are never ideal.

However, I don’t think the dividend would have survived without drastic action to address the firm’s cash flow shortcomings. Only time will tell what happens to the nail-biter of a dividend stock. Arguably, a dividend reduction is called for, given the pressures weighing on its cash generators.

The bottom line

Over the long run, I think BCE will rise out of the funk. While it may take many years to get back to the heights seen around two years ago, I view BCE as a name that’s more than just another ultra-high-yielding value trap. I think there’s deep value to be had.

Just be prepared to wait many quarters or even years for the tides to turn. For now, the dividend may be skating on thin ice, which isn’t good enough for many shareholders.

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 Joey Frenette 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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