BCE Stock Pays a Massive 8.9% Dividend, and Now Is a Great Time to Buy

This high-yielding dividend stock looks like an attractive buy, but do Canadians need to be cautious about this telecom giant? Let’s find out!

| More on:

Image source: Getty Images

Investing in dividend stocks with a reliable track record of paying shareholders their distributions is a great way to enjoy returns far superior to interest income from letting money sit idle in a high-interest savings account. BCE Inc. (TSX:BCE) has been an excellent investment for many stock market investors seeking reliable dividends over the years.

The $40.9 billion market capitalization telecom stock is a giant in the industry, but it has faced its fair share of challenges. Red-hot inflation and the resulting interest rate hikes severely impacted business.

As of this writing, BCE stock trades for $44.86 per share, down by 24.4% from 12 months ago. In that time, its dividend yield has gone from around 6% to a massive 8.9% at current levels.

With its payouts being significantly higher than its 5.6% 10-year average dividend yield, BCE stock might be a no-brainer for investors looking to boost their passive income with dividend stocks. The question is: Is the high-yield sustainable?

Problems for the telecom giant

When investing in dividend stocks, a good dividend yield is definitely an important factor to consider. However, high-yielding dividends are not the only factor you must consider when choosing a dividend stock for your self-directed portfolio. Typically, dividend yields higher than 5 to 6% are a warning sign.

Dividend yields higher than that for a stock usually reflect significant risks on the horizon for the underlying business. The payout yields become inflated when share prices go down. BCE stock and several top dividend stocks across the board have seen pullbacks in share prices over the last couple of years.

Businesses like BCE have significant capital expenses to ensure smooth operations and expansion. While BCE relies on its revenue to meet these needs, it also requires taking on debt to fund its projects. The Bank of Canada increased interest rates aggressively in the last two years to combat inflation.

BCE has been investing aggressively in improving its infrastructure to provide better service to existing customers and acquire more. The debt it used to finance these initiatives has become a problem due to higher borrowing costs.

The company’s revenues have not grown, which would make its increasing debt load more manageable, resulting in weakness in its typically strong balance sheet. The Rogers-Shaw merger means it also faces stiffer competition in the telecom market.

Foolish takeaway

The recent announcement to decrease key interest rates by the Bank of Canada spells much-needed good news for BCE stock and its investors. A falling interest rate environment will likely result in an improvement in the company’s financials. BCE has also sold off several assets from its media division and taken more measures to cut costs and improve its bottom line.

While it might take some time, these measures have the potential to improve the situation drastically in the coming quarters. Combined with further interest rate cuts, BCE’s share prices can start recovering. Investing right now might be a good way for long-term investors to lock in its juicy dividend yield.

Well-capitalized to deal with its shorter-term issues, BCE stock could be an attractive investment to buy at current levels and hold for the long run.

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 Adam Othman 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.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Any near-term decline in these two top Canadian dividend stocks will make them look even more attractive.

Read more »