Dividend investing is a proven strategy to create passive-income streams and build retirement wealth. For other investors, dividend stocks are particularly beneficial in meeting urgent liquidity or financial needs.
The TSX is home to established dividend giants, mostly industry leaders. Some of them are on a collision course to gain investors’ attention. But when BCE (TSX:BCE) and Enbridge collide, which stock would you buy?
Enbridge appears to have the edge because of its dividend-growth streak (27 years to 16) and year-to-date performance (+22.93% versus -4.01%). Also, the worst-performing sector (-3.48%) entering the fourth quarter (Q4) of 2024 is communications services (-3.48%). However, BCE is the better choice right now due to several attributes.
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Salient attribute
The most salient attribute of BCE is the critical nature of communications services. Telecommunications connect, communicate, and entertain. While telco stocks are volatile and affected by regulatory environments, the 144-year-old BCE stands strong against these headwinds. Enbridge is 75 years old.
Oligopoly
The telecommunications industry is capital-intensive, a major barrier to entry for competition, especially startups. BCE, along with TELUS and Rogers Communications, forms Canada’s telecom oligopoly. All three want to capture market share by offering high standards and advanced broadband communications networks and services.
BCE is the most dominant based on its $42.87 billion market capitalization. While Enbridge is TSX’s fourth-largest company ($120.9 billion), you have other investment prospects in the energy industry, including pipeline operators, oil & gas producers, and exploration & development companies.
Profitability record
BCE operates in a competitive landscape, but the mature company has maintained a good profitability record. The giant telco announced job cuts (around (9% of total staff) and reduced capital spending by more than $1 billion in 2024-205. According to management, the restructuring plan should improve free cash flow (FCF) in 2024 and then accelerate in 2025. BCE’s average net income in the last four years is $2.65 billion.
Latest financial performance
In the first half of 2024 (six months ending June 30, 2024), operating revenues slipped 1% year over year to $6 billion. However, net earnings jumped 52.1% to $604 million, while FCF increased 8.1% to $1.1 billion from a year ago.
Mirko Bibic, chief executive officer of BCE, noted the most intense competition on wireless and pricing in Q2 2024. He admits the sustained competitive pricing pressures affected top-line growth.
Falling interest rates and the rollout of 5G technology are tailwinds and could translate to recovery and capital appreciation for telco stocks, including BCE.
Dividend Aristocrat
BCE’s investor base is mainly income-oriented, no doubt. You’ll love this 5G stock for its dividend aristocrat status and hefty dividend yield. Suppose you choose today. BCE trades at $47 per share, while Enbridge costs $55.51. The energy stock’s dividend offer is 6.59% compared to the 8.49% yield of BCE.
The aggressive spending of BCE to upgrade its wireless network to 5G speeds is over. Management’s focus will now shift to cost control that aims to reduce the payout ratio to below 100% and make dividends safer moving forward.
