Investing is not just about buying and selling stocks. A successful investor and one who has burnt money have both bought and sold stocks. What did the first person do differently than the other person? Maybe the first person got lucky and invested at the right time. But timing the market is impossible. So, how do you ensure that investing makes you wealthy?
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Taking the long-term investing route
The first step is to identify an investing style you are comfortable and confident about, select stocks of companies you believe can grow, and hold them for the long term. Remember, not all long-term stocks will generate income. Some stocks may lose money. After all, the business world is dynamic, and what is a booming business today may not be one later.
Hence, you should stay updated on the health of the companies you have invested in for the long term to see if the reason you invested in them is still intact.
Two TSX stocks to buy and hold for the long term
BCE stock
BCE (TSX:BCE) is a value play. Many might not agree with me since the company is facing many challenges amidst the restructuring. The company reported a decline in revenue, which is a big event as the business is turnover-based. Revenue multiplies into the profit margin. The company is focused on improving its profitability margin by selling low-margin businesses and acquiring high-margin ones. Such significant changes have increased the finance and restructuring costs. BCE’s 2024 free cash flow (FCF) fell 8.1% to $2.89 billion.
However, BCE has maintained its dividend growth despite heavy capital spending on the 5G infrastructure. This increased its dividend payout ratio above its target range of 65-75% and exceeded the 100% ratio for the last four years. Such ratios are not sustainable. Analysts are suggesting a dividend cut to improve financial flexibility.
| BCE | Dividend payout |
| 2024 | 125% |
| 2023 | 111% |
| 2022 | 108% |
| 2021 | 105% |
| 2020 | 89% |
| 2019 | 74% |
| 2018 | 75% |
| 2017 | 73.50% |
| 2016 | 71.50% |
These short-term headwinds have pulled BCE stock down to its 14-year low and increased the dividend yield to 11.9%. There is a possibility that BCE could halve its dividend and not grow it for two years till it improves the balance sheet and cash flow. BCE is lowering its capital expenditure and reducing cost and debt, which could increase its FCF. It expects to grow its FCF by 11-19% to $3.2-$3.4 billion in 2025. If the company manages to achieve the higher range, it can reduce the payout ratio to 105%.
A long-term view of investing in BCE
BCE stock is trading at an attractive valuation of 12 times its forward price-to-earnings ratio, the lowest in six quarters. Behind the low ratio is BCE’s guidance of an 8-13% dip in earnings per share (EPS) for 2025. However, if you take a long-term perspective, the company has its 5G infrastructure that will generate income for the next decade. A significant portion of the capex that went into building the network has already been depreciated.
In the next five years, depreciation will be reduced, cost optimization from restructuring, and reduction in interest expense could improve the EPS even if revenue remains stagnant. Investing in BCE’s difficult times can be rewarding in its good times.
Topicus.com stock
Topicus.com (TSXV:TOI) is a technology holding company that grows its market capitalization, revenue, and profits by acquiring vertical-specific software companies. Since 2020, it has grown its revenue and net income at a compounded annual growth rate (CAGR) of 25% and 16.5%, respectively. The stock started trading in January 2021 and has grown at a CAGR of 21%.
The company is following in the footsteps of its parent, Constellation Software, whose stock price has grown at a CAGR of 25% in five years. With more acquisitions, Topicus.com’s revenue streams will expand. Some acquisitions may work, and some won’t, but the management will strive to generate positive returns. The power of compounding can grow this stock in the long term. On the valuation front, it is trading at 55.5 times its forward EPS, which is higher than Constellation’s 35.8. You could wait for the stock price to fall and buy the dip.
