Canada’s telecom giant, BCE (TSX:BCE) is among the most popular dividend stocks in the country. While the telecom industry is mature, it is fairly recession-resistant, allowing BCE to return over 360% to shareholders in the past two decades after adjusting for dividends. However, these returns are lower compared to the TSX index which has surged over 380% in this period.
Today, BCE stock offers shareholders a tasty dividend yield of 8.6% as it trades 23% below all-time highs. In addition to a high dividend, investors have the opportunity to buy the dip and benefit from capital gains when the market recovers.
But let’s see if BCE stock can deliver market-beating gains to shareholders.
BCE has an unsustainable payout ratio
In recent years, BCE’s dividend payout ratio has risen from 105% in 2021 to 111% in 2023. Typically, companies should have a payout ratio of less than 80%, providing them with the flexibility to improve their balance sheet, grow via acquisitions, and reinvest in growth projects.
Moreover, according to a report from Veritas Investment Research, the payout ratio for BCE is far higher at 155% in 2023 if we include capital leases. Basically, capital leases are costs associated with maintaining capital assets such as cell towers.
In addition to its high payout ratio, BCE stock trades at a premium. The TSX dividend stock trades at 15 times forward earnings, which might not seem high. However, its earnings are forecast to expand by just 2.2% annually in the next five years.
Analysts remain bullish on BCE stock and expect it to surge over 18% in the next 12 months. Alternatively, here’s another TSX dividend stock I’d buy over BCE right now.
The bull case for QSR stock
Valued at $48 billion by market cap, Restaurant Brands International (TSX:QSR) is among the largest companies in Canada. The stock went public in December 2014 and has since risen 168% in this period. After adjusting for dividends total returns are closer to 255%.
Trading near all-time highs, QSR pays shareholders an annual dividend of US$2.32 per share, translating to a forward yield of almost 2.9%. While the dividend yield is not too attractive, the payouts have risen over 300% in the last eight years.
QSR owns and operates fast-food chains such as Burger King, Popeyes, Firehouse Subs, and Tim Hortons. Last month, the company provided a five-year outlook, stating that it expects to end 2028 with 40,000 restaurants, US$60 billion in system-wide sales, and US$3.2 billion in operating income.
Its expansion plans should allow QSR stock to drive at least low double digital annual total shareholder returns, according to the company.
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Despite a sluggish macro environment, QSR’s comparable sales grew by 8.1% year over year in 2023, while system-wide sales growth stood at 12.2%. Further, its adjusted operating income growth stood at 7.5%. QSR’s global digital sales were up 20% to US$14 billion, accounting for a third of system-wide sales. It opened 1,168 net new restaurants in 2023, resulting in net restaurant growth of 3.9%.
The restaurant heavyweight reported a free cash flow of US$1.2 billion in 2023, while its dividend payouts totalled roughly US$400 million, indicating a payout ratio of less than 40%.
Priced at 23 times forward earnings, QSR stock is forecast to expand earnings by 9% annually in the next five years.
