BCE (TSX:BCE) has faced several challenges recently that have contributed to its mixed performance and cautious outlook. Shares of BCE stock are now down 27% in the last year, which is something even a 9.3% dividend yield can’t solve. Now, with a 202% payout ratio, there is concern the company is stretched too thin. And with too little moving forward to pick up the slack.
But, there could be a reason I might change my mind and indeed start to invest.
What happened
First, the issues. The company has experienced weaker financial results, which have led to multiple downgrades from analysts. It’s also faced operational difficulties, including significant layoffs and restructuring efforts. Bell Media, a subsidiary of BCE, announced layoffs of 4,800 employees and the termination of several TV newscasts, which indicates underlying operational issues.
What’s more, the telecommunications sector in Canada is highly regulated and competitive. BCE, like its peers, faces ongoing regulatory pressures and intense competition, which can affect its market position and profitability.
Add to this broader economic challenges, including inflation and interest rate fluctuations, that have also impacted BCE. These macroeconomic factors can affect consumer spending and the cost of capital for large corporations like BCE, further influencing their financial performance.
What needs to change
Alright, so what can BCE stock do to face all these ongoing challenges? BCE’s dividend payout ratio is significantly high, raising concerns about its sustainability. By reducing the payout ratio to a more manageable level, BCE can ensure the long-term viability of its dividends and maintain investor confidence. And that would likely mean a dividend cut.
BCE has undertaken significant layoffs and restructuring efforts, indicating underlying operational inefficiencies. The company needs to streamline its operations further and focus on cost management to improve profitability. This includes optimizing its workforce and reducing unnecessary expenses.
Staying ahead of regulatory developments and adapting to changes promptly is crucial. BCE should engage with regulators and policymakers to ensure favourable outcomes and mitigate the impact of any adverse regulations. Furthermore, reducing debt and improving liquidity can provide BCE with the financial flexibility needed to navigate challenges and invest in growth opportunities. Effective capital management and prudent financial planning are essential in this regard.
One catalyst for change
If there is one area where I would change my mind and start investing again, it would be if BCE could reduce its debt. And there are a few ways to achieve this.
Successful restructuring efforts that lead to increased operational efficiency and cost savings can improve margins and profitability. Positive outcomes from layoffs, restructuring, and other cost-cutting measures can signal to investors that BCE is on the right track.
Addressing concerns about the high dividend payout ratio and demonstrating a sustainable dividend policy can reassure income-focused investors. Then, significant progress in reducing debt and improving the balance sheet can enhance BCE’s financial stability. Lower debt levels can reduce interest expenses, improve cash flow, and provide more flexibility for investments and dividends, making the stock more appealing.
What I don’t want to see? More spending. Innovation can be great, as well as acquisitions, but not if it means more debt. So keep an eye out on BCE stock because that high dividend yield may just end up being worth it.
