BCE (TSX:BCE) is a Canada-based telecom giant that is trading 56% below all-time highs. The TSX stock has been wrestling with elevated debt levels and sluggish growth rates, forcing it to lower its dividend payout a few months back.
Despite the dividend cut, BCE stock offers shareholders a tasty dividend yield of almost 5.5% in August 2025. Let’s see if BCE can regain its momentum and deliver outsized returns to investors over the next 12 months.
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BCE is focusing on strengthening the balance sheet
During its first-quarter (Q1) results, BCE announced strategic changes, highlighted by a dividend reduction and an ambitious U.S. fibre expansion plan that signals financial discipline and growth aspirations.
The Canadian telecommunications heavyweight reduced its annual dividend from $3.99 to $1.75 per share. This 56% cut reflects the company’s response to evolving economic conditions and positions BCE for accelerated deleveraging.
BCE targets reducing its net debt leverage ratio to 3.5 times adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 2027, down from the current 3.6 times, with a longer-term goal of reaching three times by 2030.
Management emphasized that this decision provides enhanced financial flexibility while maintaining an attractive dividend yield among the highest on the TSX60. The new dividend payout policy targets 40% to 55% of free cash flow, offering greater operational flexibility.
BCE unveiled a major partnership with PSP Investments to fund its U.S. fibre growth through Ziply Fibre, which the company is acquiring. The strategic partnership involves PSP taking a 51% stake in Network FiberCo, while BCE retains 49% ownership. This structure will enable Ziply to expand from its current target of three million fibre locations to potentially eight million, with BCE maintaining exclusive retail relationships.
The collaboration is expected to improve BCE’s free cash flow by over $1 billion during 2026-2028 while reducing capital investment requirements. Management projects returns exceeding 20% from the U.S. expansion, leveraging BCE’s fibre expertise in an underserved market where only 51% of homes have fibre access compared to 75% in Canada.
Is BCE stock undervalued?
Q1 results showed stable adjusted EBITDA with improved margins, driven by a 2.1% reduction in operating costs. BCE upsized its cost transformation program to $1.5 billion in total savings by 2028, as it prioritizes successful automation and digitization initiatives.
Wireless performance showed mixed results with slight subscriber losses offset by stable churn rates and improving average revenue per user trends. The company’s fibre strategy continues delivering results, with 68% of Internet customers now on fibre-to-the-home services and penetration rates reaching 50% in mature markets.
BCE’s strategic reset positions it for sustainable growth while addressing balance sheet concerns through disciplined capital allocation and innovative partnership structures.
Analysts tracking the TSX dividend stock estimate adjusted earnings to expand from $2.74 per share in 2025 to $4.47 per share in 2029. Comparatively, free cash flow is forecast to reach $3.70 billion in 2029, up from $2.89 billion in 2024.
Given its outstanding share count, BCE stock is projected to spend $1.6 billion in annual dividends, indicating a payout ratio of below 50%. A sustainable payout ratio should allow BCE to lower balance sheet debt and target accretive acquisitions as well as increase its dividend payments.
Today, BCE stock trades at a forward price-to-earnings multiple of 12 times, which is below its 10-year average of 16.8 times. If the TSX tech stock is priced at 12 times earnings, it will trade around $53 in early 2029, indicating an upside potential of 65% from current levels. If we adjust for its dividends, cumulative returns could be closer to 85%.
