Best Stock to Buy Right Now: BCE vs Telus?

These two telecom stocks have long been strong dividend choices, but which is the better buy?

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 January 27, 2025 4:30 pm EST

When it comes to choosing between BCE (TSX: BCE) and TELUS (TSX: T), both prominent players in Canada’s telecommunications sector, there isn’t a clear choice. Both telecom stocks have proven worthy in the past. Yet both have also gone through hard times. That’s why it’s essential to delve into their recent performances, financial health, and future prospects to determine which might be the better buy. So, let’s get right into it.

A person looks at data on a screen — Image source: Getty Images

Into earnings

In the third quarter of 2024, TELUS reported adjusted earnings per share (EPS) of $0.28, surpassing analysts’ expectations of $0.23. This positive surprise was driven by a 1.8% year-over-year increase in total operating revenues, reaching $5.099 billion. In contrast, BCE posted an EPS of C$0.75 for the same period, slightly below the consensus estimate of $0.77. This shows investors that TELUS not only met but exceeded expectations, while BCE fell short.

Both telecom stocks carry substantial debt, a common trait in the capital-intensive telecom industry. However, higher interest rates pose challenges. BCE’s significant debt load, accumulated to finance spectrum acquisitions and infrastructure, could lead to increased interest expenses as rates climb. TELUS also faces similar pressures but has diversified its investments into areas like health and agriculture technology, potentially offsetting some financial strain.

When comparing profitability, TELUS has demonstrated higher gross and operating margins than BCE. This efficiency suggests that TELUS is more adept at converting revenue into profit, which is a positive indicator for potential investors.

Buying now

Dividend yields are a significant consideration for many investors. As of writing, BCE offers a forward annual dividend yield of approximately 11.97%, while TELUS provides around 7.91%. While BCE’s higher yield might seem more attractive, it’s crucial to assess the sustainability of these payouts. BCE’s payout ratio has exceeded 100%, raising concerns about its ability to maintain such high dividends without compromising financial stability. TELUS, with a lower payout ratio, appears to have a more sustainable dividend model.

Examining the price-to-earnings (P/E) ratios provides insight into how the market values these companies. TELUS trades at a P/E ratio of approximately 23, higher than its long-term average of 19.4, suggesting it may be slightly overvalued. BCE, on the other hand, has a P/E ratio of about 15, below its historical average of 16.9, indicating potential undervaluation. This suggests that BCE might offer more value for investors seeking growth at a reasonable price.

Analysts have noted that TELUS’s ventures into health, security, and agriculture could serve as catalysts for future growth. Potentially justifying its higher valuation. BCE’s focus remains on its traditional services, which, while stable, may not offer the same growth trajectory.

Future outlook

TELUS has been proactive in diversifying its revenue streams, notably through TELUS Health and TELUS Agriculture, positioning itself in growing markets beyond traditional telecommunications. This strategic move could provide new growth avenues and reduce reliance on conventional services. BCE, while a dominant player, has focused more on its core services, which may limit its growth potential in comparison.

Furthermore, over the past year, both stocks have experienced declines, with BCE’s stock decreasing by approximately 35%, leading to concerns about potential dividend cuts. In terms of volatility, BCE has exhibited higher fluctuations at 6.64% compared to TELUS’s 5.14%, indicating that TELUS’s stock price has been more stable.

Bottom line

Both BCE and TELUS present compelling cases for investment, each with its strengths and challenges. BCE offers a higher dividend yield but faces questions about sustainability and higher volatility. TELUS provides a more diversified growth strategy with stable earnings and a more sustainable dividend, albeit at a higher valuation. Investors should weigh their priorities as to whether they value higher immediate income with potential risks from a stock like BCE. Or prefer a growth-oriented approach with diversified interests from TELUS.