As one of Canada’s top telecommunications companies, BCE Inc. (TSX:BCE) has a solid position in a defensive industry. While this position has been weakened somewhat due to changing competitive dynamics, the fact remains that this high yielding stock is a defensive play.
Here’s why I’m bullish on the stock.
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BCE is attractively valued with a high dividend yield
Since the end of 2022, BCE’s stock price has fallen more than 45%. Rising interest rates and high debt levels, falling prices, and increased competition drove this spectacular fall. It was clear that BCE was in an unsustainable position and that something had to be done.
This year, BCE finally did what the market was pricing into the stock – the company reduced its dividend. It was a big cut, but one that was necessary. But today, BCE is still yielding a generous 5.4% and is trading at a mere 12 times earnings. This leaves the stock undervalued and an attractive buy, in my view.
Big changes ahead
After some very difficult quarters of declining revenue, profitability and earnings, things are looking up. This is true both in the short term and the long term. In the short term, BCE has taken steps such as layoffs, divesting non-core businesses, and deleveraging.
In the longer term, the company has made bigger plans. As it continues to pay down debt, it is also partnering up with one of the biggest U.S. investors in its U.S. growth plans. The plan is for the company to build on its position as Canada’s fastest and farthest-reaching broadband internet connection provider and leading position in fibre optics. It will do this by venturing out into the U.S.
BCE’s acquisition of Ziply Fibre is its entrance into the U.S. telecommunications industry. Ziply Fibre is the largest broadband and fibre internet provider in the US Pacific Northwest. The US fibre market is underpenetrated. This acquisition gives BCE more scale, while diversifying its operating footprint and establishing a platform for further expansion.
To do this, BCE has come together with a Canadian partner, PSP. PSP is one of Canada’s largest pension managers. They have signed up as BCE’s investment partner, and this partnership will focus on building out millions of new fibre locations in the Pacific Northwest. It’s important to note that PSP has extensive experience as an investor in the telecommunications sector, and it has been a Ziply investor.
According to BCE’s management, this investment will increase the company’s free cash flow by over $1 billion from 2026 to 2028. Also, an expected return of more than 20% is likely for BCE.
BCE’s latest quarter
As an indication of the impact of BCE’s immediate changes, we can look to the company’s most recent quarterly result (Q1/2025). In 2024, earnings per share (EPS) fell 5.3% to $3.04. In the first quarter of 2025, EPS fell 4% and operating cash flow increased more than 30%.
Looking ahead, BCE will likely continue to benefit from an improving leverage ratio, a more streamlined and focused business, and of course, its expansion into the U.S. As these different factors take hold, investors can benefit from BCE’s generous dividend yield. I am bullish on this top defensive stock trading at inexpensive valuations at this time.
