The telecom industry has been battling some pretty serious headwinds in recent years. Undoubtedly, share prices (across the major Canadian telecom companies) are down big while their dividend yields are swollen to absurd highs that some passive-income investors may have never thought possible. Indeed, BCE (TSX: BCE) stock is the telecom top dog over the past few decades.
With shares currently going for around $45 per share (I’m shocked BCE stock has fallen to these depths, as most other Canadian investors are these days!), the yield is close to the 9% mark. Undoubtedly, BCE stock went from a relatively steady dividend giant to a nosediving play with a dividend that may not be nearly as safe as we once thought, way back when the yield was at or around 5%.
BCE stock oversold, but is it a buy in May?
Of course, many believers in the name will have few issues braving the downside by picking up shares on the latest dip. I believe BCE stock is a fantastic grab for passive-income investors who are excited (and not deterred) by the nearly 30% drop experienced over the past year. However, just because a stock is at more-than-decade-long depths doesn’t mean it has nowhere to go but higher. So, do be willing to wait things out. And do expect to feel wrong in the medium term (think the next six to 18 months or so).
While BCE has been very harshly criticized, given the magnitude of headwinds that have struck the industry recently, I don’t think you can fault the company’s managers solely.
Indeed, Canada’s Big Three telecoms (as they’re often referred to by pundits) are all under some considerable pressure, with minimal signs of turning the tides. And it’s not just Canada’s major telecoms, either. Many of the older U.S. telecoms have been feeling the pinch of late, with many touching down with multi-year lows. Undoubtedly, as horrid as the selling activity has been with Canada’s telecoms, some of the plays south of the border have taken even bigger hits to the chin.
The telecom stocks have been the pain trade
At the time of writing, it’s hard to name a major telecom that’s as painful to hold as AT&T (NYSE: T), a blue-chip telecom (it looks more like a value trap than any sort of bargain these days!), while it’s down nearly 50% from its last peak not seen since all the way back in 2016!
Now, the U.S. telecom has committed to changing for the better. But whether such efforts will be enough to turn the tide remains the big question. Until now, there are limited signs of turning a corner. The $118 billion colossus will take a great deal of effort to turn the tides on!
With BCE stock down almost 38% from its 2022 highs, I’m sure some may be worried that a peak-to-trough drop of 50% (or more) could be in the cards. Unlike some of the U.S. telecom stocks, there hasn’t been much in the way of near-term relief for BCE stock.
In any case, I like BCE more than the distressed U.S. telecoms right now. Why? Not only could Canada cut interest rates first (I believe Bank of Canada will act faster than the U.S. Fed), but growing wireless demand (from newcomers) could provide a potential secular tailwind for the firm as it looks to reverse course and put recent mass layoffs behind it.
The bottom line
Although I don’t see a road higher this year, I view BCE stock as the biggest bargain in the telecom universe right here. Yes, it would be nice to wait until negative momentum curtails. But by then, I think the valuation won’t be nearly as good.
So, if you’re willing to brave the wreckage, perhaps nibbling into a quarter-of-half position right here makes sense. Whether or not the 8.85% survives, I like the value proposition for the next decade and beyond.
