Most new investors get worried whenever market volatility strikes. The stock market is definitely going through a recessionary period right now. As of this writing, the S&P/TSX Composite Index is down by almost 6% from its 52-week high. The downturn in the Canadian equity securities benchmark index is being reflected by a decline in share prices across the board.
Times like these see many investors cut their losses and exit the markets entirely. The more experienced investors consider downturns an opportunity to make money in the long run, even if it means taking some losses in the near term. Market downturns cause many overvalued stocks to return to reasonable valuations. However, the panicked selloff also results in many high-quality stocks going into undervalued territory.
The key to successfully using volatile market environments to your advantage as an investor is identifying these high-quality investment opportunities available at a bargain. The best approach is to look at businesses in defensive industries that are likely to continue generating excellent cash flows during a recession.
These recession-resistant businesses might see share prices drop with the rest of the market. However, they are well-positioned to weather the storm and emerge stronger on the other side. The best of these companies also offer high-yielding dividends that continue lining investor accounts with extra cash through quarterly or monthly distributions.
Against this backdrop, we’ll take a look at a high-quality dividend stock worth considering for your self-directed investment portfolio.
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BCE
BCE (TSX: BCE) is a $29.12 billion market capitalization giant in the Canadian telecom space. Holding around a third of the market share with 10 million customers, it also boasts a successful media segment that has TV, radio, and digital media assets. BCE is responsible for licensing the Canadian rights to several major movie channels, including Starz, Showtime, and HBO.
As of this writing, BCE stock trades for $31.92 per share. Down by over 35% from its 52-week high after the current downturn, it boasts a dividend yield inflated all the way to 12.50%!
Typically, such high-yielding dividends should trigger all the alarms in an investor’s head to avoid investing in the underlying stock. However, the situation is entirely different with BCE. In this day and age, the world is increasingly interconnected, and everyone needs the services that BCE offers. The business has an inherently defensive nature that virtually guarantees strong cash flows.
Foolish takeaway
BCE stock is a capital-intensive business, and it has struggled with high debt for a while, especially due to the aggressive interest rate hikes by the Bank of Canada a couple of years ago. Telecoms like BCE need to upgrade their networks every six to seven years. While the network upgrades are expensive, the investments result in significant upticks in revenues when they come into effect.
Once its latest network updates come into effect, BCE will start generating more free cash flow and work toward reducing its debt load — all while continuing to fund its high-yielding dividends. The company is also offloading its non-core assets to prioritize 5G and generate a higher annual revenue.
Investing in its shares right now can help you lock in the higher-than-usual-yielding dividends and reap the benefits for years to come.
