Is Fortis or BCE Inc Stock a Better Buy for Passive Income?

Fortis (TSX:BCE) and BCE (TSX:BCE) inc are similar in some ways. Which is the better stock?

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Fortis (TSX:FTS) and BCE (TSX:BCE) are two favourites among Canadian dividend investors. In one corner, we have a stock known for a decent yield and high dividend growth; in the other, we have a stock with a very high yield. Between the two of them, a decent percentage of the “dividend investing” landscape is represented.

Dividend-growth stocks tend to be high-quality, while high-yield stocks can provide high returns if they don’t blow up. In this article, I will explore Fortis and BCE side by side so you can decide which is the better fit for your portfolio.

Growth: Fortis

When it comes to historical growth, Fortis has done better than BCE has. Although its revenue growth was negative in the last 12 months, it had positive earnings growth in the last 12-month, three-year and 10-year periods (7.8%, 6.6%, and 7.3%, respectively).

BCE, by contrast, had negative earnings growth in the last 12-month, three-year, five-year and 10-year periods. BCE’s revenue growth in the last three-, five-, and 10-year periods was positive but negligible.

Fortis beats BCE on growth in total assets and book value over most timeframes. There are a few metrics where BCE wins out, like 12-month revenue growth, but on the whole, the growth factor seems to favour Fortis.

Value: Tie

When it comes to valuation multiples, Fortis and BCE are fairly neck and neck. Fortis has the higher price-to-earnings and price-to-cash flow ratios but a lower price/book ratio. A meaningful, if somewhat high, price-to-earnings-to-growth ratio can be calculated for Fortis (2.47), but the same can’t be done for BCE due to the negative earnings growth. Taking these key metrics together, I’d consider Fortis and BCE to be tied on valuation.

Profitability: BCE

Profitability is another area where Fortis and BCE are pretty similar. The two companies’ gross margins, earnings before interest and taxes margins, and earnings before interest, taxes, depreciation, and amortization margins are nearly identical. Fortis has the higher net margin, while BCE has the higher free cash flow margin, return on equity, return on assets, and return on capital. Despite the many similarities, BCE wins on more sub-categories within the profitability factor. So, this one goes to BCE.

Future prospects: Tie

Fortis and BCE are pretty similar in terms of their future prospects. They both have very few competitors, which helps their margins. They also both operate in industries where people essentially “have to have” what they offer: not many people would choose to go without internet service or home heating. They both have heavy amounts of debt, which means that their stock prices should increase if the Bank of Canada keeps cutting rates like most experts think it will. Finally, the two companies have modest growth prospects based on their industry categories.

This one’s a tie.

Dividend coverage: Fortis

One final factor we can look at is dividend coverage. If you buy a company as a dividend investment, you want that dividend to continue without interruption. Here, Fortis beats BCE by a country mile. Fortis has 51 years of dividend increases and a 74% payout ratio, meaning it’s paying out far less in dividends than what it earns in profit despite an extraordinarily long dividend-growth streak.

BCE only has four consecutive years of dividend growth, and a payout ratio near 100%, meaning it pays out almost all of its profit in dividends despite minimal dividend growth.

There’s no question: the dividend category goes to Fortis.

Final verdict : A very slight win for Fortis

In a side-by-side comparison, Fortis wins on two factors while BCE wins on one. Based on this quick analysis, Fortis stock looks better positioned than BCE.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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