Dividend investing is a proven strategy for laid-back investors to create extra income streams. However, long-term investors’ success in building a robust passive income portfolio depends mainly on the choice of investments. The TSX is trending upward in December, and it’s a good time to start a money-making activity.
Communications services is the only primary sector out of 11 that is in red territory. Nonetheless, an industry giant remains a solid anchor in an investment portfolio. At $37.79 per share (-22.8% year-to-date), BCE (TSX: BCE) trades at a discount but pays a mouth-watering 10.4% dividend yield.
Given the over-the-top dividend offer, you can produce $3,275.93 in passive income yearly ($818.98 quarterly). All you need is $31,560 to set things in motion. The investment amount is equivalent to the maximum Registered Retirement Savings Plan (RRSP) contribution limit for the tax year 2024.
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Primary consideration
Most Canadians invest in BCE for its hefty dividend payouts. Published reports say the $34.5 billion telecom giant has been paying dividends since 1949 (75 years). The telco suspended the payouts for only two quarters in 2008 due to a buyout deal that eventually fell apart.
Key takeaway
The key takeaway for and appeal of BCE as a long-term hold is Canada’s telecom sector’s oligopoly and capital-intensive nature. Combined with TELUS and Rogers Communications, the three dominate the wireless market. BCE derives revenues from three business segments: Bell Wireless, Bell Wireline, and Bell Media.
Financial performance
BCE reported a net loss of nearly $1.2 billion in Q3 2024 compared to Q3 2023, although free cash flow (FCF) increased 10.3% year-over-year to $832 million.
Curtis Millen, CFO of BCE and Bell Canada said, “BCE’s Q3 results demonstrate our continued transformation efforts to drive long-term cost efficiencies and profitable subscriber growth while making strategic M&A transactions to lean into our core strengths.”
Its President and CEO, Mirko Bibic, assures BCE remains disciplined in pursuing profitable growth in an intensely competitive environment. “Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures.”
Business development and transactions
In September this year, BCE sold its 37.5% stake in Maple Leaf Sports and Entertainment (MLSE) to Rogers Communications for $4.7 billion. The deal should close in mid-2025.
BCE announced last month that Bell Canada will acquire Ziply Fiber in the U.S. for $5 billion. Acquiring the leading fibre Internet provider in the Pacific Northwest will extend Bell’s U.S. footprint and garner a significant market share in an underpenetrated fibre market. The Canadian titan expects to complete the milestone in the back half of 2025.
Meanwhile, Bell will expand its collaboration with Microsoft and launch Microsoft Teams Phone Mobile services. The latter provides a consistent user experience besides simplifying business communication and boosting productivity and efficiency.
Market concerns
Some market observers expressed concerns about the possible suspension of dividend hikes following the major acquisition in the U.S. But Millen countered, “As we move through the rest of the year and into 2025, we will remain focused on continued cost efficiency and margin-accretive subscriber growth, strengthening our future financial performance.”
