BCE Stock’s Dividend Yield Hits 9%—Is it Finally Time to Buy?

BCE (TSX:BCE) stock has a super-swollen dividend yield right now as it passes 9%.

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BCE (TSX:BCE) stock saw its dividend yield finally surpass the 9% level last week as shares sunk just north of $44 per share. Undoubtedly, the yield has swollen a great deal in recent quarters. And though the telecom firm faces no shortage of headwinds, I still think that at some point or another, value-conscious, long-term investors may wish to jump in, even as the losses come in quickly if they seek next-level value.

A 9% yield? It can’t be sustainable, right?

Indeed, the dividend has grown to become quite a hefty commitment. At the time of writing, the dividend yield may have retreated slightly below or above the 9% level. In any case, I view BCE stock as more than worth pursuing here as long as you can stomach a slight reduction in the payout and won’t be pressured to hit that sell button should the firm decide to announce such at some point this year.

Undoubtedly, a dividend reduction is typically met with rampant selling. And though I already view BCE stock as incredibly undervalued, it may take a while before Mr. Market realizes he’s overpunished a firm. Indeed, oversold conditions tend to beget even more selling as negative momentum builds upon itself.

And while I would certainly not rule out a dividend reduction at some point over the medium term, especially if shares can’t find a bottom by the autumn season, I find that the dividend may not be as at risk as many investors think.

BCE’s dividend looks pretty enticing

Undoubtedly, it’s never a good idea to hear that substantial cuts have been made to the labour force to preserve a dividend payout. With BCE’s chief executive officer Mirko Bibic defending his firm’s actions in a testimony to the Commons committee, public sentiment for the telecom titan is arguably at a low point right now.

Though only time will tell where BCE stock’s price and dividend yield finishes this rough year, I think that there’s a pretty good risk/reward scenario for passive-income investors right now. At 19.54 times trailing price to earnings (P/E), shares look modestly priced given the impressive telecom assets you’ll get.

Additionally, BCE is still a long-term way to play the growth in 5G networks across the country. Firms like BCE must not only provide a high-quality connection but also offer expansive coverage across more than just the major cities in Canada, which requires considerable investment.

While reducing the dividend may be an easy answer following its latest round of layoffs, I’m not so sure management will follow through, given dividend cuts tend to weigh heavily on a stock’s reputation among income-oriented investors for many years. Perhaps lower rates could provide a bit of relief over the near term.

Bottom line

For now, there are no easy solutions for the firm’s sluggish growth rates, especially as the major corporate restructuring takes it to the next level. As more investors grow cautious and skeptical of BCE’s dividend, I’d be willing to nibble away at shares, even if its risk of staying intact creeps higher with every big down day.

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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