Canada’s top telecom firms have been getting pretty heavy on the yield, at least over the past few years. Undoubtedly, the telecom stocks are still some of the brightest blue chips around. That said, industry headwinds seem pretty insurmountable at this point. And as the patience of Canadian passive-income investors is put to the test, questions linger as to how the top telecom firms are going to engineer some sort of meaningful comeback. Indeed, a sudden rebound seems off the table for now.
However, the big question remains just how far off the telecom top dogs are from bottoming out. Indeed, if you’ve been actively buying the dip in shares of Telus (TSX:T) and BCE (TSX:BCE), two of the most yield-rich names in the industry, you’re probably off-put by the continued descent.
Lower rates to the rescue? Not so fast!
Of course, lower interest rates are welcomed relief for the capital-intensive firms, like the telecoms, that need to spend boatloads of cash on upgrading their network to the latest and greatest. Additionally, BCE, unlike Telus, has a media business that hasn’t been a source of strength in recent years. Though cuts to the business could shore up cash to invest in wireless efforts, I’m just not sure if the firm can find the right balance between returning cash to shareholders and investing in areas that could bolster future cash flows.
For now, things aren’t looking all too bright for the dividend yield of BCE as it soars to new heights. Now standing at almost 10.5%, BCE stock’s dividend yield is bountiful but at risk of a reduction, perhaps sooner rather than later — at least in my opinion.
BCE stock: A dividend yield now north of 10%
Some bullish analysts out there are still optimistic but cautious as its yield climbs to levels some would have thought not possible just over a year ago. Notably, Desjardins Securities’s Jerome Dureuil has a hold rating on the name, with a price target — $43 per share — that actually entails positive gains. Indeed, if BCE can give its wireless business a jolt, perhaps there are realistic scenarios where the stock can rise and the dividend can stay intact.
For passive-income investors with a high risk tolerance, BCE stock seems incredibly intriguing. But unless you’re willing to stick it out past another rough couple of quarters, you’ll probably be best served looking elsewhere. BCE just isn’t the same Steady Eddie dividend darling it used to be. Now, it’s a deep-value play and a falling knife — one that could prove difficult to catch without getting hurt.
Telus
Between BCE and Telus, I prefer the latter, even though the dividend yield isn’t yet in the double digits. At writing, T stock boasts a 7.44% yield. That’s still quite rich but a hefty commitment for the firm as it continues powering through turbulent times. With a 21.2 times forward price-to-earnings (P/E) multiple, T stock isn’t all that cheap for a stock that’s shed more than 37% of its value.
Either way, I view the dividend as on stabler footing. Recently, the company clocked in a decent quarterly number alongside a modest dividend hike. Sure, pressures remain, but I think income investors are in good company as Canada looks to steer higher going into 2025.
Larger yields do not mean better yields. Between the two TSX telecom titans, I prefer T stock unless you firmly believe in BCE’s management team and their ability to pull off a wireless-driven turnaround. Indeed, BCE stock could have immense upside in such a turnaround scenario. Not to mention, you’d lock in that more than 10% yield should the dividend become better supported with time.
