Wise investors rarely invest in a business they don’t know or is difficult to understand. Billionaire and GOAT (greatest of all time) of investing Warren Buffett has the same advice. Large-cap stocks are safe options because of their financial stability, longevity, and industry position.
BCE (TSX:BCE), Canada’s most dominant telecommunications company, is an ideal anchor stock in an investment portfolio. I also believe that the average Canadian investor owns this top-tier 5G stock. The $42.8 billion owner of Bell Canada and Bell Media provides essential products and services 24×7. You can also say that people can’t live without them.
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Best buy for the price
BCE is not expensive and is the best buy at less than $50. If you invest today, the share price is $46.91. More importantly, the telco giant is a generous dividend payer and a reliable source of passive income. Prospective investors can partake in the juicy 8.51% dividend yield (quarterly payout).
The extensive distribution network (8,000 retail points) contributes significantly to BCE’s retailing business and supports dividend growth. It boasts Dividend Aristocrat status, owing to annual dividend increases. Last February, the 3.1% dividend hike was the 16th consecutive year of dividend growth. Moreover, the lengthy dividend-growth streak indicates a sound financial position.
Financial and operational highlights
BCE is a screaming buy following the release of its most recent quarterly results. In the second quarter (Q2) of 2024, operating revenues dipped 1% year over year to $6 billion, while net earnings jumped 52.1% to $604 million compared to Q2 2023. Notably, free cash flow (FCF) rose 8% to $1.1 billion from a year ago.
BCE also deployed a 3800 MHz spectrum in select Greater Toronto Areas to further speed up its 5G+ network 4 (up to four gigabytes per second). The 23,841 total retail Internet net subscriber activations were the best in a second quarter since 2007. It also resulted in a 3% growth in Internet revenue. Also, households subscribing to Internet and mobility service bundles increased 18% year over year.
Mirko Bibic, president and chief executive officer of BCE and Bell Canada, said, “In the highly competitive wireless environment, we’re striking the right balance between subscriber growth and profitability, and our promotional discipline is delivering new subscribers focused on higher-value connections.”
According to Bibic, BCE’s transformation from a telco to a tech services and digital media leader is ongoing. The cloud services capabilities are expanding, while security and managed automation continue to drive business solutions services.
Bibic believes that with the transformational investments, innovative partnerships, and sale of some assets, BCE will have a clear strategic vision and path in the second half of 2024.
Outlook
BCE projects revenue growth not exceeding 4% in 2024. In compliance with federal government policies, management will reduce capital expenditures, including highly regulated businesses. It will slow down pure fibre build-out and lead to lower FCF). Nevertheless, the annual common dividend per share guidance is $3.99 compared to $3.87 last year.
Non-BCE investors should consider taking a position in the stock. Besides the investment-grade debt profile, the company has a solid financial foundation, allowing for flexibility.
