This TSX star has finally broken the silence. It stopped playing the tough guy and resorted to the most anticipated decision. Yes, BCE (TSX: BCE) has finally slashed its dividend by 56% to $1.75 per year. This decision was not immediate or unexpected. It was expected and priced in the share price. That explains BCE’s share trading near its 2010 level. This is a rare discount as BCE is not a company in a declining business. Its secular growth trend of 5G connectivity remains strong.
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The story behind the rare discount of the 5.8% yield stock
The Canadian telecom sector is plagued with headwinds. First came the network sharing legislation, which discouraged investments in 5G fibre infrastructure. When the companies tried to monetize their infrastructure investments, macroeconomic and geopolitical instability affected consumer demand.
Revenue decline
The government’s immigration policies are slowing population growth. It means companies are now competing for a smaller population, building on price competitiveness.
Companies are aggressively investing in marketing to encourage customers to opt for premium plans. However, customers are opting for unlimited and larger capacity data plans and shifting from postpaid to prepaid services amid fears of recession induced by tariff wars.
Moreover, reduced travel to the United States has lowered outbound roaming revenue.
All this is reducing the average revenue per user (ARPU). BCE is feeling more pressure as the demand weakness comes when its consumer electronics revenue from The Source vanishes. Its revenue fell 1.3% year over year due to reduced ARPU (to $57.08 from $58.14 in the first quarter of 2024), lower consumer electronics revenue, and a slowdown in subscriber count.
The macroeconomic uncertainty is stressing BCE’s profitability.
Profit decline
For 2025, BCE has guided adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of -2% to 2% as revenue falls and the cost of media and programming increases.
It expects adjusted earnings per share (EPS) to fall 8-13% as higher interest, depreciation, and amortization, and lower gains on the sale of real estate reduce net income.
Amidst all this, the management first paused dividend growth in early 2025 and compensated shareholders by offering a higher discount on the treasury dividend-reinvestment plan (DRIP) between January and April 2025. However, that increased outstanding shares, which means it will have to set aside more money to pay dividends.
A step in the right direction makes a 5.8% yield attractive
A 125% dividend payout ratio was unsustainable. From a $7 billion operating cash flow in 2024, it spent $3.6 billion on dividends and $3.9 billion on capital expenditures (capex). Hence, BCE slashed dividends, reducing cash outflow in dividend payments and capex to $1.6 billion and $3.4 billion, respectively, in 2025.
BCE is also reversing its increased outstanding shares by ending the discounted treasury DRIP. Shareholders who opted for the DRIP will continue to get shares. However, BCE will source the DRIP shares by buying back shares in the open market instead of using treasury shares. This change will reduce its outstanding share count and increase EPS.
Also, BCE has updated its long-term dividend-payout policy to 40-55% of free cash flow (FCF) instead of 65%-75%. Shareholders will still benefit as it is focused on increasing its FCF by 11-19% in 2025 by reducing capex. It means the money BCE used to build fibre infrastructure will now be passed on to shareholders.
Is the rare discount of BCE a value opportunity?
The early signs of BCE’s restructuring and its shift from telco to techno are now visible. It launched the “Ateko” brand that will provide Managed Services on IT workflow automation and cybersecurity. It also launched Security-as-a-Service on the Canadian Sovereign Cloud.
Canada started regulating wholesale fibre, forcing BCE and Telus to share their network with competitors for a fee. BCE has been a strong opponent of this law and is expressing its opposition by cutting spending in Canada and expanding in the United States, where the wholesale fibre market is not regulated.
It remains to be seen how BCE’s new services will grow its revenue and earnings. Nevertheless, BCE’s forward price-to-earnings ratio of 10.9 times is the lowest in a decade. Its efforts to boost EPS through buybacks make the current discount an attractive value proposition.
