1 Dividend All-Star I’d Buy Over BCE Stock

BCE stock has long been a dividend favourite, but after a new deal, there may be a new favourite in town.

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BCE (TSX:BCE) has long been a favourite among dividend investors. That’s thanks to its solid reputation as a telecommunications giant and a history of reliable payouts that made it a staple for income-seeking portfolios. However, recent shifts in the market and increased competition have put a damper on its once-stellar dividend appeal. While it still offers dividends, the growth has slowed, thereby raising concerns about sustainability amidst rising debt and changing consumer preferences.

So, while BCE might have been the go-to choice for juicy dividends, it’s now facing challenges that make investors think twice about its future payout potential. And another challenge may be coming.

What happened?

BCE recently encountered a few bumps on its path to maintaining its status as a top dividend stock. The latest news highlighted Rogers Communications (TSX:RCI.B) buying out Bell’s 37.5% share of Maple Leaf Sports & Entertainment (MLSE) for a hefty $4.7 billion. While this deal might be beneficial for Rogers, it leaves Bell with some financial adjustments to make. With Rogers taking a controlling interest in MLSE, which includes beloved teams like the Maple Leafs and Raptors, Bell will need to focus on reducing its debt. Plus, it is re-aligning its strategy towards becoming a tech-driven company. The sale is expected to close in mid-2025, so the impact is still unfolding.

In the midst of this shakeup, Bell is pivoting its strategy and aims to use the proceeds from the sale to enhance its financial flexibility. Mirko Bibic, the chief executive officer of BCE, expressed optimism about the future, emphasizing a focus on core growth drivers. Yet the reality is that Bell’s heavy debt load is around $39.5 billion, and that’s been a concern for investors. This high level of debt, combined with a recent quarterly revenue decline, is raising eyebrows about the sustainability of Bell’s current dividend payouts. These are now pushing a payout ratio of nearly 183%. It’s a precarious situation for a company that once thrived on providing reliable dividends.

Moreover, Bell’s efforts to secure broadcast rights for major sports teams may help maintain some level of revenue. Yet the evolving landscape of telecommunications and media presents ongoing challenges. With competition heating up and changing consumer preferences, investors are starting to wonder if BCE’s dividend is still a safe bet. Or if they should brace for potential cuts down the line. While BCE has a legacy of being a dividend darling, the recent turbulence may leave investors second-guessing their loyalty, especially as they look for more stable, growing income options in the market.

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Rogers the new top dog?

Rogers Communications is emerging as an intriguing option for investors, especially with the buyout. It not only gives Rogers a commanding 75% control over MLSE, but it also strengthens its position in the lucrative sports and entertainment sector. The deal underscores Rogers’s commitment to its core business strategy, emphasizing live sports as a critical driver of revenue and engagement, which could enhance its market value significantly in the long run.

In addition to its growing sports ownership, Rogers boasts a solid revenue stream and impressive quarterly earnings growth, reported at a whopping 261.5%. While the company does carry a significant amount of debt of around $46.34 billion, Rogers has assured investors that this acquisition won’t negatively impact its debt leverage. That’s thanks to financing involving private investors. This strategic maneuver positions Rogers to capitalize on its assets effectively. With a forward price-to-earnings (P/E) ratio of 10.37, it may present a more appealing valuation compared to Bell’s current situation.

Furthermore, Rogers has been proactive in securing long-term broadcasting rights, including a 20-year agreement for the Toronto Maple Leafs and Raptors. This not only ensures continued revenue from advertising and sponsorships. It also solidifies its role as a key player in the Canadian sports landscape. With a solid plan to leverage its sports investments while focusing on core growth drivers, Rogers may just be the safer bet, especially for investors seeking a blend of stability and growth potential in a market filled with uncertainties.

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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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Rogers Communications. The Motley Fool has a disclosure policy.

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