There’s no shortage of great dividend stocks to pick from on the market right now. And there’s only a handful of those that currently trade at a decent discount. How about a dividend stock down 11%?
Here’s a look at BCE (TSX:BCE), which happens to be a dividend stock down 11% just this year.
Meet BCE
Most investors are aware of BCE as one of the largest telecoms in Canada. BCE offers subscription services for its cable, wireless, wireline, and TV segments. Additionally, BCE is also a media behemoth, with a portfolio of radio and TV stations that blanket the country in coverage.
Telecoms generate a reliable and recurring source of revenue. And while the subscription-based services are largely defensive, some have increased their appeal in recent years.
Two notable examples of this are BCE’s internet and wireless segments.
When the pandemic started, nearly all office workers transitioned to an online remote business model. This necessitated the need for a fast and stable internet connection. Several years on, many of those same workers are still operating in a remote or hybrid capacity.
By way of example, in the most recent quarter, BCE realized 55,591 internet subscriber activations, reflecting the second-best fourth-quarter (Q4) results from the company in almost two decades.
Turning to the wireless segment, that growth is equally impressive as subscribers turn to mobile commerce and apps. That nearly insatiable demand for data and new devices keeps providing BCE with a bump in revenue.
In the most recent quarter, BCE saw 170,831 wireless and connected device activations. That led to wireless service revenue growth of 3.9% while driving a higher blended ARPU (average revenue per user) up 0.4%.
Why is BCE trading down so much
Given the strong demand and juicy dividend (more on that in a moment), why is this dividend stock down 11%? There are a few factors that contribute to that.
First, we have the fact that telecoms like BCE often require capital to fund growth. The cost of borrowing that capital has increased over the past year as interest rates have shot up. That volatility led to BCE needing to scale back growth and even look to cut costs.
That leads to the second point: those cuts. Earlier this year, BCE announced a series of cuts — the largest by the telecom in three decades. Specifically, BCE is looking to shed 9% of its workforce in 2024, which BCE hopes will bring in $250 million in annualized cost savings.
Finally, we have inflation. Over the past two years, we’ve seen the highest inflation in decades. That’s forced some subscribers to trim services, leading to a reduction in revenue.
The key takeaway for investors here is that the BCE remains a great long-term defensive investment despite the drop in its stock price.
Speaking of that dip, I’ve already mentioned that a dividend stock down 11% is an opportunity. What investors should also note is that the stock is down a whopping 31% over a longer two-year period.
Dividend stock down 11% is an income and growth opportunity
Perhaps one of the main reasons why investors love stocks like BCE is for the reliable dividend it pays. And in the case of BCE, the company has been paying out that dividend without fail for well over a century.
As of the time of writing, the yield on BCE’s quarterly dividend pays an attractive, if not insane, 8.67%. As to why that yield is so high, recall that the stock price is down considerably, which bumps the yield.
No stock is without some risk. Even the most defensive stocks, like BCE, can see their share price dip significantly. But in the case of BCE, the company’s business is solid, and there are growth investments.
As those investments come to fruition, the stock price will reverse its downward trend, making this current discount look like a major buying opportunity.
In my opinion, BCE is a great long-term option for any well-diversified portfolio. Buy the dividend stock down 11% now and hold it for decades.
