Successful dividend investing in the stock market is all about making high-quality picks from the right sectors that can distribute payouts comfortably, supported by solid underlying businesses. Looking into stock from the top companies in industries that can align with your passive income goals is a good way to go about this.
The Canadian telecom sector is highly consolidated and well-established, and has a few recession-resistant names that many investors like to own in their portfolios. Most of the top telecom stocks offer shareholders an attractive dividend yield supported by solid fundamentals.
Two Canadian telcos are the top considerations for many investors. Each has its own strategic approach to respond to changing market conditions. Dividend-centric investors should consider these carefully to make a well-informed decision before investing in Canadian telecom stocks.
Today, we’ll take a good look at Telus Corp. (TSX:T) and BCE Inc. (TSX:BCE) to help you determine which might be the better pick for your self-directed portfolio.
Telus
Telus is one of the Big Three telcos in the country. Boasting a $34.3 billion market cap, it has over 9 million mobile customers across the country, accounting for roughly a third of the market. The company provides internet, TV, and landline services. It has also recently started upgrading from its legacy copper network to fibre optic cables to offer better value for money to customers. Besides this, Telus has several subsidiaries operating across different sectors, including agriculture, healthcare, security, and international business services.
As of this writing, Telus stock trades for $22.65 per share and boasts a 7.4% dividend yield. Despite high-yielding dividends, its payout ratio is in the reliable 60–75% of free cash flow range. The company’s diversified revenue streams, increased earnings, and sustainable payout ratio make it an attractive investment to consider.
BCE
BCE is another one of the Big Three, boasting a $29.7 billion market capitalization. It offers wireless and internet services, broadband, landline services, and has a considerable media segment that holds digital media, TV, and radio assets. BCE recently announced a 56% dividend cut, effectively slashing the payouts to relieve itself from double-digit yields that we are seeing of late. The dividend cut did not go well with plenty of investors, but it might be a good decision.
Slashing payouts to more sustainable levels means that the company has better financial flexibility to fuel future growth. The more the company can grow, the better returns it can offer to investors in the long run. Being the biggest driving force behind 5G technology in Canada, BCE could benefit from having better financials. As of this writing, it trades for $32.60 per share and boasts a 5.4% dividend yield.
Foolish takeaway
Dividend-focused investors seeking immediate returns might not appreciate the dividend cut announced by BCE. However, those with a long-term investment horizon might appreciate the change because it lets the telco improve its financials over time at the cost of lower dividends for the time being.
Telus offers the promise of growth through dividends that it does not plan to cut. It also has the backing of several diversified revenue streams that might make payouts more sustainable for the company.
Between the two, it is difficult to make the wrong decision for your self-directed portfolio. If you’re seeking higher-yielding immediate returns through dividends, Telus wins. If you’re willing to invest with plenty of patience for potentially better long-term returns, BCE might be a better pick.
