Better Stock for Ultra-High Yield: BCE or Telus?

BCE (TSX:BCE) and Telus (TSX:T) shares are looking like cheap bargains to get ultra-high dividend yields!

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The Canadian telecom stocks boast incredibly elevated dividend yields nowadays. And it’s not all about the headwind of higher interest rates, either. Indeed, the telecom firms have endured a unique slate of challenges. Higher borrowing costs are just one of the major thorns on Canada’s connectivity behemoths.

Though shares of BCE (TSX:BCE) and Telus (TSX:T) are in multi-year bear markets, passive-income investors looking for a great deal may wish to punch their ticket into either one of the names before the headwind that is the high-rate climate turns gradually fades away with every rate reduction made by Canada’s central bank, the Bank of Canada.

The turbulent telecoms tumble

Could the fate of the top two telecom stocks be in the hands of the Bank of Canada? Perhaps. Much lower rates would certainly help telecom players climb out of the depths they currently find themselves in. That said, the problems extend well beyond just high rates. As each firm looks to tackle issues ahead of them, investors may wish to keep watch of the two names while their yields are still historically swollen.

Though it’s unclear how each firm will turn things around, I believe that if you like the yield (8.57% on shares of BCE right now and 6.98% for Telus), it can’t hurt to start a relatively small position at current multiples.

BCE

BCE stock is starting to get serious about the power of artificial intelligence (AI). The company noted that its “AI leadership” sets it apart from the pack. Though there’s a lot of operational efficiency gain to be had from AI, I’m unsure as to whether AI truly stands to “vastly improve” customer experiences, as its chief executive officer, Mirko Bibic, said it would. In any case, chalk BCE stock as another non-tech firm that’s jumping aboard the AI train, if not to jolt efficiencies, perhaps to impress investors.

Any brief mention of AI could get investors incredibly excited as the revolution continues onward.

After delivering a relatively decent profit in the second quarter (Q2), I’d argue that the risk/reward trade-off for the name hasn’t looked this good in years. Clearly, past restructuring efforts are starting to show. The big question is whether they’ll continue to help propel future quarters as headwinds remain.

With such a strong dividend and a modest 24.39 times trailing price-to-earnings (P/E) ratio, I’d not be afraid to buy the stock here if you love the nearly 9% yield. The payout isn’t guaranteed to stay at these heights for long. And if BCE stock is close to a bottom, perhaps the yield alone makes BCE stock a better bet than most other telecom stocks on the scene today.

Created with Highcharts 11.4.3Bce PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Telus

Telus stock has also been quite turbulent of late, but it, like BCE, may be closer to turning higher. Since July began, the stock has soared more than 10%. With coming quarterly numbers likely to be against fairly low estimates, I’d not be afraid to start thinking about buying on recent strength.

Like BCE, there are still issues, but with solid managers and potential AI efficiencies to unlock over the long run, count me as a bull right here. Between BCE and Telus, I’d have to go with the latter. It’s “growthier,” and I’m not a big fan of BCE’s media business amid headwinds.

The macro headwinds may be quite pronounced, but if you’re willing to embrace the hurricane, perhaps you’ll stand to be rewarded with rebound gains and a side of massive dividends.

Created with Highcharts 11.4.3TELUS PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

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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 recommends TELUS. The Motley Fool has a disclosure policy.

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