Valued at a market cap of $28 billion, BCE (TSX: BCE) is Canada’s largest communications company. It provides wireless, wireline, internet, streaming, and television services to residential, business, and wholesale customers.
Earlier this month, BCE made headlines with a dramatic 56% dividend cut, reducing quarterly payments from $0.9975 per share to $0.4375 per share. It was the telecom giant’s first dividend cut in 17 years. The decision reflected years of financial strain, with dividend-payout ratios exceeding 100% of free cash flow and reaching an unsustainable 125% in 2024.
The dividend cut addressed issues that included intense competition, regulatory uncertainty following recent CRTC (Canada Radio-Television and Telecom Commission) decisions, and inflationary headwinds that squeezed margins. Moreover, BCE’s high debt burden forced the company to prioritize balance sheet optimization and deleveraging over shareholder distributions.
Despite the dividend cut, the TSX tech stock rallied over 6% following the announcement. This indicates investors are optimistic about BCE’s focus on financial discipline and growth opportunities. The new dividend policy targets a sustainable 40-55% payout ratio and provides flexibility for debt reduction and strategic investments. Despite the dividend cut, BCE stock offers shareholders a tasty dividend yield of 5.8%.
BCE also announced a partnership with PSP Investments to create Network FiberCo. The partnership will target U.S. fibre expansion through the pending Ziply Fiber acquisition. Under this agreement, BCE will hold 49% of Network FiberCo while PSP Investments will contribute $1.5 billion for a 51% stake.
Network FiberCo will develop one million fibre passings in Ziply’s existing markets while targeting up to five million additional passings. This means that Ziply could reach eight million fibre locations. The ambitious expansion leverages non-recourse debt financing to optimize capital efficiency and enables BCE to gain traction in the underpenetrated U.S. broadband market.
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Is the TSX dividend stock a good buy right now?
BCE CFO Curtis Millen detailed the telecommunications giant’s strategic priorities during a JPMorgan conference. In the closely watched event, Millen emphasized that BCE will focus on customer experience, network expansion, technology services growth, and digital media transformation following the company’s significant dividend cut and announcement of the U.S. fibre partnership.
The TSX dividend stock expects to lower its leverage ratio to 3.5 times by 2027 and three times by 2030, down from the current 3.8 level post-Ziply acquisition. This deleveraging path incorporates approximately $2 billion in annual cash savings from the dividend reduction, $1.5 billion in equity contributions to Network FiberCo distributed over time, and proceeds from targeted asset monetization of $7 billion in non-core assets.
The Network FiberCo joint venture with PSP Investments represents a capital-efficient approach to U.S. fibre expansion. It targets six million additional fibre passings over eight to 12 years at approximately $1,000 per passing. BCE will maintain 100% of retail customers while paying wholesale fees to the partnership for last-mile infrastructure.
BCE demonstrated pricing discipline in wireless operations despite softer subscriber growth, focusing on margin-accretive additions rather than market share gains. BCE achieved strong performance in fibre markets, reaching 45% penetration within three years of deployment. Further, Bell Media delivered robust growth with 36% earnings before interest, tax, depreciation, and amortization expansion driven by digital transformation initiatives.
Management expanded its cost savings program to $1.5 billion by 2028, leveraging automation and process simplification to enhance operational efficiency while improving customer experience across all business segments.
What is the target price for BCE stock?
Analysts expect the TSX stock to increase adjusted earnings per share from $3.04 in 2024 to $4.47 in 2029. Today, BCE stock trades at 11 times forward earnings. If it maintains a similar multiple, it will trade around $49 per share in early 2029, indicating an upside potential of 50% from current levels.
