The TSX Composite benchmark has risen nearly 8% in the last six months as investors are increasingly expecting the Bank of Canada to soon start slashing interest rates as consumer inflation continues to ease. However, high shelter costs and a recent increase in gasoline prices amid geopolitical tensions could still reverse the progress we have seen in the inflation fight. This mixed economic outlook has led conservative investors to approach the market cautiously, as the possibility of the Canadian stock market turning bearish again in the near term can’t be ruled out completely.
In such an uncertain macroeconomic environment, it becomes even more important for long-term investors to hold some quality, high-yield dividend stocks in their portfolios. Fundamentally strong dividend stocks would not only offer an attractive yield in the current environment but also can promise steady income for years to come, making them an attractive investment option even for investors with low-risk appetite. Let’s take a closer look at one such dividend stock, BCE (TSX:BCE), that I find worth considering right now.
A high-yield Canadian dividend stock to buy now
As you might already know, BCE is the largest communications firm in Canada that provides a variety of mobile wireless, broadband Internet, and satellite TV services across Canada. The company currently has a market cap of $42.4 billion as its stock trades at $46.36 per share with nearly 11% year-to-date losses.
In the last couple of years, lower advertising expenditures of companies and a difficult consumer spending environment have affected BCE’s earnings growth. This is one of the key reasons why its share prices slid by nearly 21% in 2022 and 2023 combined. The recent declines, however, have led to a notable increase in BCE’s dividend yield, which currently stands at a solid 8.6% on an annualized basis.
In 2023, the Canadian communications giant registered a 4.2% YoY (year-over-year) decline in its adjusted earnings to $3.21 per share. Nonetheless, its annual earnings figure exceeded Street analysts’ estimates of $3.19 per share. Similarly, despite ongoing challenges, BCE’s total revenue has been growing positively for three consecutive years, which reflects its strong customer base and diversified portfolio of services. In 2023, BCE’s revenue climbed by 2.1% YoY to $24.7 billion. Given these positive factors, the recent declines in BCE stock make it look undervalued to buy now and hold for the long term.
Sustainable dividends, even in challenging times
This underlying strength of its business model could also be understood by the fact that BCE’s free cash flow in 2023 grew positively by 2.5% YoY to $3.14 billion from $3.07 billion in the previous year. More importantly, factors such as lower capital expenditures and effective working capital management helped the company increase its fourth-quarter free cash flow by around 243% from a year ago to $1.3 billion.
It’s important to note that strong cash flow for the company can help it continue rewarding investors with a steady and sustainable dividend, even in challenging times. BCE’s robust cash flow is one of the factors that has helped it raise its dividend for 16 consecutive years.
