Is BCE Stock a Buy?

BCE stock continues to struggle, but with an ultra-high dividend yield, could it be a good long-term option for investors?

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 31, 2024 9:30 pm EST

BCE (TSX: BCE), one of Canada’s telecom giants, faced a mix of challenges and opportunities in recent months. thus leaving investors wondering if it’s a buy at current levels. The company’s third-quarter 2024 earnings, released recently, reflected a slight decline in financial performance. Yet there were also some notable highlights that might suggest resilience in the long run.

A worker gives a business presentation. — Source: Getty Images

Recent performance

BCE stock reported adjusted net earnings of $688 million, with adjusted earnings per share (EPS) at $0.75. This marked a dip from the $0.82 EPS reported in the same quarter last year and was largely attributed to non-cash asset impairment charges. These charges, totalling approximately $2.1 billion, hit Bell Media’s TV and radio assets, underscoring the challenges traditional media has faced in a shifting digital landscape.

On the revenue front, BCE stock brought in $5.84 billion for the quarter, which came in slightly below analyst expectations of $5.97 billion. This represented a year-over-year decrease of 1.8%, driven mainly by a 14.3% drop in low-margin product sales. BCE stock has been cutting back on its retail footprint, including closures of The Source stores. While this may appear concerning, BCE stock managed to tighten its belt on costs. Operating expenses fell by 4.8%, helping the company achieve a 2.1% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $2.72 billion.

One of the bright spots for BCE in the third quarter was its subscriber growth, particularly in the mobile segment. The company reported 131,043 total mobile phone net activations, a 4.4% increase year over year. Prepaid net activations were a standout, surging 269% to 52,543, the highest quarterly figure in nearly two years. BCE stock also performed well on the internet subscriber front, with 23,841 total retail Internet net activations. This represented BCE’s second-best Q3 result since 2007 and led to a 3% boost in Internet revenue.

Future considerations

Strategically, BCE stock is making moves to bolster its growth prospects and streamline its business. One of the key announcements recently was BCE stock’s plan to acquire Ziply Fiber, a leading fibre internet provider in the Pacific Northwest for approximately $5.0 billion. This acquisition, which is expected to close in the second half of 2025, would significantly expand BCE stock’s fibre internet presence, giving it access to new markets in the U.S. and positioning the company for future growth. At the same time, BCE is offloading non-core assets to optimize its portfolio. The company announced the sale of its 37.5% stake in Maple Leaf Sports & Entertainment (MLSE) to Rogers Communications for $4.7 billion, with the deal expected to close in mid-2025.

Despite these initiatives, BCE’s stock has been under pressure. Yet BCE stock’s dividend remains one of the most compelling reasons investors consider the stock. The company’s forward annual dividend rate stands at $3.99, yielding an eye-catching 11.72% at current levels. However, the sustainability of this payout is something to watch. The company’s payout ratio has ballooned to 4,400%. This signals that dividends are being funded from cash flow rather than net income. While BCE stock generated strong operating cash flow at $7.48 billion over the trailing 12 months, its debt load is at $40.08 billion, showing a capital-intensive business model that means maintaining such a high yield could become increasingly difficult over time.

Bottom line

BCE stock comes with both risks and rewards. The steep decline in share price, coupled with a very generous dividend yield, may make it appealing for income-focused investors willing to ride out short-term volatility. However, the sustainability of BCE stock’s payout and the company’s ability to manage its debt remain key concerns.

If you’re looking for stability and long-term value, BCE’s current valuation might represent an opportunity to scoop up shares at a discount. However, if you’re wary of high payout ratios and revenue struggles, waiting for further signs of recovery may be the more prudent choice. Either way, BCE stock is a stock that continues to attract attention, and its next few quarters will be critical in determining whether it can turn its fortunes around.