BCE (TSX:BCE) stock has made its short-term investors apprehensive, as the news around the company has not been quite positive. You kept hearing about accelerated capital investment in the 5G infrastructure and a strong competitor emerging with the merger of Rogers Communications and Shaw Communications in 2022. On one side, there is a 5G opportunity, and on the other side, there is competition risk.
However, the market had priced the risk in 2022, sending the stock down 19% from its April 2022 peak. It was a perfect opportunity to invest $10,000 in BCE in 2023. However, the downtrend continued in 2023 and 2024 as more headwinds came. It is an example of the unpredictable nature of the market. The short term is volatile, but things normalize in the long term.
If you invested $10,000 in BCE in 2023
Before investing in a stock, you should understand the nature of returns that stock gives. BCE is a telecom company which spends significantly on infrastructure development. This initial capital spending gives it an infrastructure that earns cash through subscriptions for several years. This cash flow pays off the capital spending while generating sufficient income for shareholder dividends.
That makes BCE a dividend stock, giving quarterly payouts. Since the company pays 65-75% of its free cash flow as dividends, there is little room for capital appreciation.
If you invested $10,000 in BCE at the start of January 2023, you purchased 168 shares at $59.5 a share. The stock price has dipped 25% since then to $44.5. Your $10,000 is now $7,484.
Since it’s a dividend stock, you add the dividend returns. In 2023, your 168 shares earned $650.16 in dividends, bringing your investment to $8,134 ($7,484 + $650).
If you invested $10,000 in BCE’s DRIP
If you reinvested $10,000 in BCE’s dividend-reinvestment plan (DRIP), your investment would look like the table below.
| Dividend date | Dividend per share | Total Shares | Dividend amount | DRIP Price | DRIP shares |
| 15-Apr-23 | $0.97 | 168.00 | $162.54 | $64.02 | 2.54 |
| 15-Jul-23 | $0.97 | 170.54 | $165.00 | $58.82 | 2.80 |
| 15-Oct-23 | $0.97 | 173.34 | $167.71 | $52.23 | 3.21 |
| 15-Jan-24 | $0.97 | 176.56 | $170.82 | $55.05 | 3.10 |
| Total | 179.66 | $666.06 |
Let’s say you received your first quarterly dividend on April 15, 2023, of $162.54 on 168 BCE shares. If you invested in BCE using a registered savings account that lets your investment grow tax-free, BCE’s DRIP will reinvest your entire amount. BCE declares a DRIP price and allots shares depending on the dividend. Your $162.54 dividend bought you 2.54 DRIP shares, which added to your share count.
Next quarter, you received a dividend on 170.54 shares. Since BCE shares were trending down, you got more DRIP shares after every quarter, and your total share count increased to 179.66. These shares are worth $8,003, and the total dividend collected is $669.06. The $10,000 you invested in BCE in 2023 is worth around $8,670.
| Share Count | Capital Appreciation | Dividend | $10,000 worth now | |
| Without DRIP | 168 | $7,484.40 | $650.16 | $8,134.56 |
| With DRIP | 179.66 | $8,003.76 | $666.06 | $8,669.82 |
Should you be worried?
BCE is going through a transition where it is selling its non-core assets and expanding in digital, cloud, and other fast-growing, less-regulated segments. This transition comes after accelerated capital spending in 5G infrastructure that increased its leverage.
Raising significant debt is normal for a telecom company as it has a high initial capital requirement. However, the infrastructure pays off through regular cash flows from subscriptions. The stock has taken a plunge as the high leverage came when the interest rate surged to a decade high. Moreover, rising competition reduced the price of internet plans.
However, you need not be worried as all these headwinds will normalize in the long term. Communication is a critical sector, and Canada’s top three telcos command more than 85% market share. The transition to 5G will make the internet cheaper and increase the number of devices connected to the internet.
If you look at the big picture, you can make the most of this downturn by investing small amounts monthly in BCE’s DRIP. This way, you can lock in a higher yield and benefit from dollar-cost averaging and compounding.
