It’s Currently 8.7%, but Is BCE’s Dividend Safe?

BCE stock recently dipped, and it pays an ultra high dividend. But investors might want to think twice before jumping in.

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BCE (TSX:BCE) stock slipped after the company reported first-quarter 2024 earnings. Is the dip a good buying opportunity? Does the ultra high yield make it an attractive investment today?

In this five-minute video, Motley Fool Canada analysts talk about BCE’s prospects and two other dividend stocks to consider. (Prefer to read? There’s a transcript below.)


Nick Sciple: I’m Motley Fool Canada senior analyst Nick Sciple, and this is the “5-Minute Major,” here to make you a smarter investor in about five minutes. Today we’re discussing the latest earnings from BCE, Inc., the company formerly known as Bell Canada Enterprises. My guest today is Motley Fool Canada Chief Investment Officer Iain Butler. Iain, thank you for joining me.

Iain Butler: Great to be here, Nick. Sun is shining. North American markets are up. All good!

BCE’s earnings and the stock market reaction

Nick Sciple: Yeah, not all good if you’re a BCE shareholder, though! This morning shares fell as much as 2%, bounced back a little bit in response. The first quarter 2024 earnings results continuing the skid has the stock down nearly 15% so far this year. Iain, what didn’t the market like about this earnings release?

Iain Butler: Yeah, my take here is that it’s really just a continuation of a theme, Nick. You mentioned the year-to-date stock price performance. BCE’s stock price is effectively where it was a decade ago. It’s sort of in the mid $40s, and that’s where it was back in 2014. All that means is that investors, by owning this stock for the past decade, really, all they’ve earned are the company’s dividend payments, and we’ll circle back on the dividend situation. But I mean, if we zoom in on the company’s earnings release and try to come up with an answer there, I think the issue is growth, and it has been for the past decade. Or really a lack of growth. There’s some push and pull throughout the report: Some areas are growing by sort of low single digits. Some areas are shrinking by low single digits. But overall, the company’s income statement is pretty much as it was back in 2014.

Is BCE a good stock to buy? Is the ultra high yield dividend safe?

Nick Sciple: You’re not painting a pretty picture here! But if you had to look at this sell-off as a potential opportunity, the business does have a pretty high dividend yield when you look at that number. Or do you have long-term concerns about this business, maybe about the dividend itself?

Iain Butler: Totally, yeah. BCE fans will absolutely point to the dividend, and it’s admittedly quite an attractive number. 8.7% is pretty good. That has a potential of beating the market over the next decade, just on its own. But for me, I tend to lean toward concern. More concern than not, actually, about that dividend, and about the company’s financial health overall. So I mentioned the income statement really hasn’t moved since 2014, much as it was. There are some metrics, however, on other financial statements that have moved. And and I’m talking about the company’s total debt and BCE’s dividend payout. So total debt has gone from $15.5 billion at the end of 2014, and now sits at $37.7 billion. So more than double. And again, BCE is no more profitable today than it was back in 2014.

And the per share has gone from $2.47 to $3.99, and that’s a 61% increase that’s occurred without a similar increase in the company’s free cash flow.

About free cash flow: Over the past 12 months, BCE generated $3.3 billion in free cash flow. Its dividend obligation was $3.5 billion. So BCE is not generating enough free cash flow to cover its annual dividend payout. And at some point that’s just not sustainable. Something’s got to give on that front. And to me, that’s a situation I prefer to let somebody else worry themselves about. I’m happy to be on the sidelines as BCE tries to figure out how to, where to come up with the cash, to pay that dividend.

Nick Sciple: Great lesson on not just focusing on the dividend yield: What’s the greater context the company is operating in to be able to deliver that dividend? Is that sustainable? So in that light, you spend a lot of time here at The Motley Fool Canada looking at dividend-paying stocks of all kinds. If you had to think of another place Canadian investors might be looking for reliable dividend stocks to provide income for them outside of BCE with its concerns, what’s a company that comes to mind for you?

2 TSX dividend stocks to consider instead

Iain Butler: Totally, and you’ve spent a lot of time, Nick, on this situation around energy and a lack of energy to to meet the forthcoming demand across North America. So a company that comes to mind is Fortis (TSX:FTS). Fortis is a Canadian utility company — a North American utility company, really. It offers a 4% plus yield. And I think they’re very well positioned to be a beneficiary of the growing demand for energy across North America.

Nick Sciple: Another one that comes to mind if you’re thinking about Canadian energy is Tourmaline Oil (TSX:TOU), one of the biggest natural gas producers in Canada. That yield might not look that high when you just take a glance at it. However, they pay regular special dividends that make the payout pretty robust, and I think there’s opportunities for it to grow over time. Well, with that, we’re out of time here at the “5-Minute Major.” Hopefully we made you a little bit smarter, and we hopefully will see you next time as well. Thanks for joining me Iain.

Iain Butler: Fool on.

Nick Sciple: Fool on.

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 Iain Butler has positions in Fortis. The Motley Fool recommends Fortis and Tourmaline Oil. The Motley Fool has a disclosure policy.

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