Investing in blue-chip stocks can be considered an excellent way of minimizing risk while allocating money to investments in the stock market. The Canadian telecom industry is highly consolidated, with primarily three companies accounting for most of the market share. Considering how important it is for people to stay connected in this day and age, the telecom sector is rightfully perceived as a highly defensive industry.
However, BCE Inc. (TSX: BCE), one of the Big Three Telcos in Canada, has been one of the worst-performing telcos over the last few years. As of this writing, BCE stock trades for $32 per share, down by over 50% from its five-year highs.
The question is, are things going to improve moving forward? Would it be wise to invest in the stock when so many investors are pulling out?
The entire telco sector has been in a rough position in recent years. Despite no pressure from outside competitors in the domestic market, Canadian telecom providers havenât offered a lot of earnings growth. Canadians will not appreciate price hikes in a bid to increase earnings, but telcos can improve margins by making operations more efficient.
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BCE stock
BCE owns and operates Bell Canada, an internet and cellular network provider operating throughout Canada. The company also has significant media assets and other properties. BCE is not the only underperforming telco. Its peers and media in general have not been thriving of late.
The telco industry is highly consolidated, especially after Rogers Communications buying out Shaw. The move makes Rogers a stronger competitor, but it will likely reduce overall competitive pressure on BCE.
BCEâs recent earnings saw it report 49.5% earnings growth, over 800% free cash flow growth, and 29% operating cash flow growth. However, the companyâs overall revenue decreased by 1.3% in the same quarter last year. The earnings painted an overall good picture and indicate that BCE is becoming more efficient.
BCE has taken steps like divesting non-core businesses, deleveraging, and laying off employees. BCE has been the farthest-reaching broadband internet connection provider. It leads the industry in fibre optics, and it has had the fastest growth among its peers. Its acquisition of Ziply Fibre also opens the door to the US telecom industry.
The company might not look like itâs in the best position right now. However, diversifying into another market and setting itself up for further expansion means there is plenty of growth potential that investors can leverage by investing in its shares at current levels.
Foolish takeaway
The question that still stands is whether it might be a good investment right now. BCE reduced its dividends to make more money available to put back into the business. While income-focused investors might see dividend cuts as a bad thing, it is a sign that the company is looking to get its balance sheet into a stronger position. I feel that the dividend stock warrants at least a small portion of the capital you might be considering investing into the market right now.
