Canadian investors have had a lot to digest lately, and June 24 is shaping up to be another important day. That’s when we receive the latest Consumer Price Index (CPI) data for May. With inflation on everyone’s mind, this number could set the tone for the TSX for the rest of the month, especially for dividend stocks like BCE (TSX:BCE).
A look back
The April CPI came in at 1.7%, down from 2.3% in March, showing progress but also raising more questions. Core inflation, which strips out volatile items like food and energy, is still hovering around 3.1%. That’s higher than the Bank of Canada’s 2% target. So while rate cuts are still on the table, the central bank may be waiting for more proof that inflation is consistently cooling. That puts even more attention on the May CPI print coming out just before the market opens on Monday.
All eyes will be on how Canadian stocks react, especially BCE. This telecom giant is widely owned for its dividend, which has come under pressure this year. Back in May, BCE surprised the market by announcing it would cut its annual dividend from $3.99 to $1.75. That’s a big drop and the first cut in over a decade. Management said the move was necessary to pay down debt and strengthen its balance sheet. Investors didn’t love the news, and the Canadian stock has been on shaky ground ever since.
Let’s look at the numbers
Still, BCE’s fundamentals remain solid. In its first-quarter earnings released on May 8, BCE reported revenue of $5.9 billion, a slight dip of 1.3% year over year. But net earnings surged 49% to $683 million, thanks to cost-cutting and a few one-time gains. Earnings per share (EPS) rose to $0.68 from $0.44 in the same quarter last year. While revenue slipped, BCE is still profitable and generating solid cash flow.
Its fibre network also continues to expand, now reaching over 7.8 million locations. That’s part of a long-term growth strategy, and one that should support stable operations for years to come. BCE is also trimming costs and restructuring its workforce. The plan is to keep its leverage ratio in check and remain competitive even in a higher interest rate world.
Now, June 24
So, what does this mean for June 24? If CPI data comes in softer than expected, markets may rally on renewed hopes of rate cuts later this year. That would help dividend-paying stocks like BCE, which tend to struggle when rates are high. Lower inflation would ease pressure on household budgets and business costs, which could improve sentiment across the board.
But if CPI surprises to the upside, BCE may stay under pressure. High inflation would mean the Bank of Canada might hold off on cutting rates once again, or even consider more hikes. That’s not great news for heavily indebted companies or those that rely on stable income investors.
Foolish takeaway
BCE’s yield is still high. At a share price of around $31, the forward dividend yield sits near 5.7%, even after the cut. But some income investors remain wary, especially since the dividend was once considered rock solid. Still, for long-term investors, this could be a turning point. The dividend cut may have reset expectations, but it also gives BCE room to grow again. By cutting its payout, it frees up capital to invest in its network and pay down debt. If the inflation data is favourable and rates start to trend lower, BCE could become more attractive again, especially to those who believe in its long-term plan.
With economic data taking the spotlight and inflation still in focus, June 24 could mark a shift in sentiment. Keep an eye on CPI and watch how stocks like BCE respond. It may just be the beginning of a rebound, or a signal to wait a little longer before jumping in. Either way, this is one stock worth keeping close tabs on as Canada’s economic picture continues to unfold.
