At long last! BCE (TSX: BCE) stock finally ripped the band-aid off by slashing its dividend. Indeed, a dividend yield in the teens was never viewed as remotely sustainable to begin with. Now that BCE shareholders have more clarity on the dividend they’ll receive, it should be no surprise that the stock is back on the uptrend again.
Sometimes, all a stock needs is a bit of a cathartic puke and the occurrence of a bad news event, such as a dividend reduction. Indeed, the post-dividend cut reaction was really not much of a surprise. In numerous prior pieces, I predicted that a dividend reduction was just a matter of time, and the stock probably wouldn’t experience another leg lower, given how much negativity was already priced in.
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BCE stock finally slashed its payout, but the post-cut yield is still very respectable!
Now that investors can stop asking questions about the fate of the dividend (yes, the recently cut dividend looks safe and sound), we can all focus on the telecom titan’s path forward as it navigates another challenging year for the industry.
At the time of this writing, BCE stock has given back a good chunk of the post-dividend-reduction gains. At just north of $30 per share, BCE shares are down around 59% from all-time highs. And while a V-shaped recovery seems to be off the table, I think investors are getting a great deal on a stock that currently yields a well-covered 5.8%.
Sure, that’s less than half of where it was prior to the recent dividend reduction, but it’s a payout that passive income investors can rely on. Just because the dividend is on a more stable footing, though, does not mean that BCE’s business fortunes have magically turned a corner.
Sure, the company now has more financial flexibility because it doesn’t have such a gigantic dividend commitment. But management will need to make the most of the extra flexibility if the market is to start rewarding the ailing stock with sustained gains.
BCE stock seems to be on the right track
Personally, I’m more in the wait-and-see camp, given BCE has been a value trap that’s hurt just about every investor who’s tried to time a bottom. Indeed, the bottom in a stock can be pretty elusive. And for new investors, I’d argue that it’s best to buy a stock with the belief that shares will continue to move lower.
That way, one will have a plan for what to do when shares get even cheaper. Moving ahead, the balance sheet should strengthen with time. Though, I wouldn’t get my hopes up for an outsized dividend hike anytime soon. Management must invest in the right areas (wireless) to give subscriber growth a nice jolt.
For now, the company has made the right moves to deleverage and reprioritize. Most analysts seem mildly bullish following the recent dividend reduction. And while the cost reduction plan won’t yield needle-moving quarters anytime soon, they are a step in the right direction.
Bottom line
As is the case with most battered stocks, do proceed with caution as more downside could be on the horizon before a bottoming-out process. Given how stormy the telecom scene has been, I’d argue there’s no rush to buy the dip. Those keen on the name may wish to buy incrementally through the year to average a decent cost basis. Personally, I’ll be sitting on the sidelines, at least until more positive developments arrive.
