Are you looking for more dividend income? If you’re like me, you want a lot more dividend income without taking on too much added risk. While this type of opportunity doesn’t come along that often, I believe that BCE Inc. (TSX:BCE) is that opportunity today. In fact, BCE stock is currently yielding a whopping 12.2%.
When a stock like BCE has this kind of dividend yield, investors should at least consider it. So, should you buy BCE stock while it’s below $33?
Why did BCE stock plummet?
To understand whether we should buy BCE stock today, let’s start by exploring why it has fallen so dramatically in the last two years.
The Canadian telecom industry is changing – and changing fast. Some of the changes, such as fibre-optic cables replacing copper wires, are to the benefit of BCE (as well as all telecom companies). But some of the changes are to the detriment of BCE. Gone are the days when BCE was protected. Today, we have a harsh new reality.
In 2023, the government officially mandated the CRTC to prioritize consumer rights, competition, and universal access to internet services. What this means is that Canada’s largest three telecom providers must give competitors access to their main fibre networks for a fee. Today, we are seeing that this move has had the intended effect – more competition, more options for consumers, and lower prices.
But what is good for the consumer has been bad for the big telecom giants like BCE, with pricing pressures taking their toll. As this continues, BCE will continue to be hit. This has meant management is adjusting and finding new ways to deliver shareholder value.
BCE’s transformation
Naturally, BCE was not happy with this development. This is a transformation story that’s bred out of necessity, like most of them are.
Moving forward, the company will need to make some changes. And these changes are already being implemented. For example, BCE continues to lay off employees in a bid to rightsize its operations and improve the bottom line.
The risk associated with BCE stock is greater than it’s ever been – hence, the high yield. There is, of course, risk, but should we give up on this Canadian telecom giant? I don’t think so. Because BCE is in the midst of a transformation. The company is letting go of old businesses and making room for new ones. As BCE transforms, it will draw on the strength from its unmatched position in the telecom industry, with the fastest and farthest-reaching broadband internet connection and a leading position in fibre optics.
A 12.2% dividend yield
Patience is a virtue. And while we wait for BCE stock to recover, we get this juicy dividend. This makes BCE stock very compelling. The dividend is backed by BCE’s defensive revenue stream and its strong free cash flow generation, which came in at $832 million in the third quarter of 2024. It’s also backed by BCE’s infrastructure assets and its position as one of the largest three telecom companies in Canada.
Entering the US market
BCE’s recent acquisition of Ziply Fibre, the largest broadband and fibre internet provider in the US Pacific Northwest, introduces something new to BCE. It will help the company take its competitive edge beyond Canada and gain exposure to additional growth. The US fibre market is underpenetrated and this will give BCE more scale, while diversifying its operating footprint and establishing a platform for further expansion.
Importantly, the acquisition is immediately accretive to cash flow, and free cash flow accretive after Ziply’s fibre buildout. BCE is funding this with the proceeds from the sale of its minority stake in Maple Leaf Sports and Entertainment (MLSE).
The bottom line
High debt levels, a changing telecom market, and greater uncertainty are plaguing BCE stock. However, for the reasons discussed in this article, including a 12% dividend yield, I think it looks compelling for long-term investors.
