The telecom sector’s woes in Canada seem far from over. Experts, including those in major Canadian banks, have further cut rates for telecom stocks, which might indicate that a sector-wide comeback is unlikely. However, if the sector starts a recovery phase, there are three stocks that should be on the radar of Canadian investors.
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A telecom stock offering a solid mix of dividends and growth
Up until the sector-wide slump pushed it down 40% from its five-year peak, Telus (TSX: T) offered a solid blend of dividends and growth. Its overall returns for the last 10 years are still the best among the Big Three companies that dominate the telecom sector in Canada. One reason to buy Telus is that, like all other telecom giants in Canada, its yield has risen to a desirable level: 7.8%.
If you lock in this yield and the stock starts growing back again, you will get the best of both dividends and its recovery potential. Telus is a slightly better long-term pick for its diversified business model. The telecom company has been expanding out to new markets, including telehealth, home security (and smart homes), and even artificial intelligence-related services through its tech subsidiary. Its long-term growth prospects do look more promising than others.
The most heavily discounted telecom stock in Canada
BCE (TSX: BCE) is easily the most devastated telecom stock right now. It has fallen over 56% from its five-year peak and is currently incredibly overvalued, with a price-to-earnings ratio in three digits. While it’s still a blue-chip stock and the underlying company has a massive operational footprint and millions of consumers across the country, it’s not as safe as blue-chips tend to be.
In addition to all the other risks it’s facing right now, BCE is also experiencing a loss of confidence inside the company, and insiders have sold over 56,000 company shares in the last three months. The only upside is the massive yield of 12.6%. Assuming the stock starts a recovery journey soon (before it has to slash its dividends), the yield alone can be reason enough to buy this stock.
The best 5G stock in Canada
Rogers Communications (TSX: RCI.B) is arguably Canada’s best 5G stock. Theoretically, this should give the stock a significant edge when it comes to emerging domains like the Internet of Things (IoT) since its 5G reach should allow the company to be the top pick for IoT companies for their connections.
However, the IoT boom isn’t happening fast enough to counteract the regulatory stress all Canadian telecom stocks are facing right now. But it’s still doing better than its peers. It experienced a significant surge in new mobile and internet connections (better than both Telus and BCE), and both service revenue and earnings before interest, taxes, depreciation, and amortization grew year over year.
Foolish takeaway
The three telecom stocks are worth looking into for their inflated yields. Even Telus and Rogers should be considered for their growth and recovery potential. It’s a time game right now. If the recovery happens swiftly enough, all three would be promising picks. If not, you may have to be more careful of your choices in the sector.
