Both BCE (TSX: BCE) and Toronto-Dominion Bank (TSX: TD) have had a rough time recently. Once known as the epitome of safety, they’re now high-yielding stocks that investors are afraid to touch. But maybe this is the best time to consider them.
Let’s do just that.
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BCE
BCE stock has had a really difficult year. In fact, it’s had a really difficult three years. The extent of this can be seen in BCE stock’s one-year and three-year price performance, which is down 34% and 60%, respectively.
The biggest reason for the pressure on BCE stock these days is the fact that it’s paying out more than its operating cash flow in dividends and capital expenditures. And this obviously can’t go on forever. The company needs to find a way to stop this. There are a few things being done.
First, the company is cutting costs through layoffs. This will increase cash flows in future years. Secondly, BCE is divesting non-core businesses, which will also boost cash flows. So, while there is definitely a risk that BCE’s dividend will be cut, the company has other options that could mitigate that.
Today, BCE stock is yielding a very juicy 13.45%. Added risks recently include the tariff situation and its potential effect on economic growth and consumer spending. But, a large part of BCE’s business is still quite defensive. As a telecom company, its revenue and earnings are relatively stable and pretty strong even in the face of economic weakness. Also, its revenue is recurring, and the company has a strong market position and an unmatched network infrastructure.
TD Bank stock
As one of Canada’s leading banks, TD has enjoyed a leading position and stellar reputation for many years. But this came crashing down a little recently with the money laundering scandal that plagued the bank. In fact, TD was ordered to pay $3.09 billion in fines, with certain restrictions placed on future operations. This hit the bank’s bottom line as well as its reputation.
So, what happened to TD Bank stock? Well, as you can see from the graph below, it’s down 11% versus three years ago. But it’s actually up 8% compared to one year ago. That’s a pretty impressive performance, given the turmoil at the company. And it speaks to the diversification, financial strength, and the resilience of the bank.
But looking ahead, I see trouble heading TD Bank’s way, both from a macro and company-specific perspective. In terms of the macro, economic growth will be pressured with the advent of the new tariffs, and economic weakness is not good for banks. In terms of TD’s company-specific problem, the bank will likely see slower-than-expected growth in the U.S. due to restrictions placed on it because of the money-laundering scandal.
The bottom line
BCE stock is trading at levels last seen during the 2008/09 financial crisis. While the company might need to decrease its dividend, in the long run its dividend will likely be a good income source for investors. It certainly faces a new environment today, but its position in the telecom industry remains strong.
Therefore, I think that BCE looks like the better bet for long-term stable income, and I would invest in BCE stock at this time.
