High dividend yields are tempting, but not all high-yield stocks are worth owning for the long run. Some companies struggle to sustain their payouts, while others face short-term pressures that drive their share prices lower, creating an opportunity for Foolish Investors to buy at a discount. When a stock offers both a massive dividend yield and a strong long-term outlook, it becomes an excellent investment opportunity.
In the same way, one top Canadian dividend stock has seen its share price tumble more than 33% over the last year, bringing its annualized dividend yield to an eye-catching 11.7%. While some investors may be cautious due to its recent decline, this company remains a dominant player in its industry with steady cash flows and a strong market position. At its current stock price of $33.56 per share and a market cap of $30.6 billion, BCE (TSX:BCE) looks undervalued. Let me explain why this long-term buying opportunity is too good to ignore.
Signs of resilience in a tough year
The past year has been challenging for BCE as a tough competitive environment, slowing subscriber growth in certain segments, and broader market pressures have weighed on investor sentiment. However, the company has been actively navigating these headwinds.
Despite a slight dip in its total revenue in the fourth quarter of 2024, BCE saw an impressive 16.1% YoY (year-over-year) jump in its net quarterly profit to $505 million. Similarly, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 1.5% from a year ago. This profitability expansion lifted the company’s EBITDA margin to 40.6% — its highest fourth-quarter margin in over 30 years.
Strong digital revenue growth also helped BCE’s media division perform well last quarter, with the segment’s adjusted EBITDA climbing 14.2% YoY. Interestingly, digital media now makes up about 42% of its total media revenue, up from 35% a year ago, reflecting the company’s successful push into streaming and digital advertising.
Dividend stability and cash flow management
In the latest quarter, BCE faced a decline in free cash flow due to borrowing costs and increased tax obligations amid a high interest rate environment. However, it still maintained its quarterly dividend to offer an annualized payout of $3.99 per share.
Despite the ongoing challenges due mainly to macroeconomic uncertainties and declining consumer spending, BCE has been managing costs effectively. Last year, the company lowered its capital intensity to 16% from 18.6% in 2023. Its efforts to reduce the capital expenditures by $684 million also provided additional flexibility to sustain its dividend while funding key growth initiatives.
Why this high-yield stock is a long-term buy
Even amid temporary challenges, BCE is continuing to expand its fibre internet and 5G wireless networks, which will help it attract more customers in these high-demand areas. It has also strengthened its business technology services of late, with its enterprise solutions revenue growing 18% YoY last year. In addition, the company is actively investing in artificial intelligence-powered cybersecurity and cloud-based solutions through partnerships with Palo Alto Networks and Microsoft. All these growth and security initiatives brighten BCE’s long-term growth outlook, making this high-yield dividend stock worth holding for the long term.
