The Toronto Stock Exchange is a mine of rich dividend stocks that give high yields. In this dividend mine, some stocks have the highest yields right now as their stock price has stumbled due to short-term challenges. However, their long-term dividend-paying capacity remains unaffected.
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Telecom stocks at multi-year lows
The Canadian telecom sector is undergoing a major upheaval. The telecom sector invested billions of dollars in technical upgrades to 5G, which increased the leverage on their balance sheet. That was followed by an interest rate hike from 0.25% to 5% in 15 months from April 2022 to July 2023. Moreover, BCE (TSX:BCE) and Telus (TSX:T) started a price war to poach Shaw’s customers, which hurt their profit margin.
The rising financing cost and lower price of subscriptions stressed the cash flows and inflated BCE’s and Telus’s dividend-payout ratios to 111% and 77%, respectively, in 2023. These ratios are way above their target range, and so are their leverage ratios. Such fundamentals made investors worry about their dividends, and these stocks went into a downtrend.
Telecom sector prediction for 10 years
The two telecom stocks fell another 10% in December as the Bank of Canada and the U.S. Fed signalled a slowdown in rate cuts in 2025 over fears of rising inflation from several policy changes. Moreover, Canada has cut its immigration target by 20% for the next three years. This could slow the growth prospects for the two telcos that rely on immigrants for new subscriptions.
The next three years could be challenging for telcos as they could face lower subscription growth and slightly higher financing costs. Taking a conservative approach, I expect their stock price to grow a modest 3.2% annually and the dividend per share to remain stable. Since Telus announced a 3% dividend growth in the third-quarter earnings, I included that in the 2025 dividend per share.
These stocks could pick up from 2028 onwards after three years of slow growth as the 5G opportunity kicks in. The 5G technology will enable artificial intelligence (AI) at the edge, from autonomous cars to drone deliveries to smart homes and AI security cameras. That could create more revenue-generating opportunities for Telus and BCE and help them resume dividend growth.
You will be glad you bought these magnificent dividend stocks now
If you are considering investing in telecom stocks when the growth begins, you will lose out on the power of compounding. Both stocks offer a dividend-reinvestment plan (DRIP) that buys stocks from the dividend money. Since the stock prices are at their multi-year lows and yields are inflated (Telus yields 8%; BCE yields 11.8%), you can get more for less.
A $10,000 investment in BCE today can buy you 294 shares and earn an annual dividend of $1,173. This dividend can buy 33.4 DRIP shares, compounding your dividend to $1,306 in 2026. Note that I have considered a dividend-growth pause till 2027. By the end of 2034, your BCE investment could earn you $3,222 in annual dividends.
| Year | BCE Stock Price 3.2% CAGR* | Annual Investment | BCE DRIP Shares | BCE Share count | BCE Dividend per share (3% CAGR) | Total dividend |
| 2025 | $34.00 | $10,000.00 | 294.1 | 294.0 | $3.99 | $1,173.06 |
| 2026 | $35.09 | $1,173.06 | 33.4 | 327.4 | $3.99 | $1,306.45 |
| 2027 | $36.21 | $1,306.45 | 36.1 | 363.5 | $3.99 | $1,450.41 |
| 2028 | $45.00 | $1,450.41 | 32.2 | 395.7 | $4.11 | $1,626.38 |
| 2029 | $46.44 | $1,626.38 | 35.0 | 430.8 | $4.23 | $1,823.42 |
| 2030 | $47.93 | $1,823.42 | 38.0 | 468.8 | $4.36 | $2,044.00 |
| 2031 | $49.46 | $2,044.00 | 41.3 | 510.1 | $4.49 | $2,290.91 |
| 2032 | $51.04 | $2,290.91 | 44.9 | 555.0 | $4.63 | $2,567.24 |
| 2033 | $52.68 | $2,567.24 | 48.7 | 603.8 | $4.76 | $2,876.45 |
| 2034 | $54.36 | $2,876.45 | 52.9 | 656.7 | $4.91 | $3,222.41 |
By the time growth resumes in 2028, you will already own 363.5 shares of BCE, which could be worth $16,357 if the stock price surges to $45. If you delay your $10,000 investment to 2028, you can only buy 222 shares, which gives an annual dividend of $912.
A similar calculation on Telus with similar predictions of a dividend pause till 2027 and growth in 2028 could earn you $2,241 in dividends by 2034. Those are good returns for those who stay invested.
