Two months back this stock was offering a $3.99 annual dividend per share, or an 11.5% yield as it traded near its 14-year low. High-yielding stocks carry risks of dividend cuts, and for BCE (TSX:BCE), it was imminent.
BCE was undergoing a turnaround from telco to techno with a heavily leveraged balance sheet and high interest expenses. The weak macroeconomic environment, slowing immigration, and a price war delayed the outcome of the turnaround, which cost BCE a 56% dividend cut and a change in dividend policy.
BCE’s journey from high yields to sustainable yields
Things weren’t rosy for BCE even before 2024, when a new regulation disrupted the telecom industry competition. Between 2020 and 2022, BCE spent $14 billion in capital expenditures (capex) on 5G network infrastructure to get the first-mover advantage. It took the risk of increasing its leverage and raising its dividend payout ratio beyond 100% thinking that it would later cash out on the infrastructure.
| BCE | Dividend payout |
| 2025* | 105% |
| 2024 | 125% |
| 2023 | 111% |
| 2022 | 108% |
| 2021 | 105% |
| 2020 | 89% |
However, BCE’s plan hit a setback in April 2022 when the Bank of Canada spiked the interest rate from 0.25% to 5%. It faced another setback in August 2024 when the telecom regulator mandated BCE to share its infrastructure with competitors at wholesale prices, disrupting its return on $14 billion in capex. The company continues to request that the regulator overturn the decision.
Simultaneously, BCE started restructuring its business, reducing its exposure to the regulated space and increasing its exposure in the technology space. It divested non-core businesses – radio stations, The Source stores – slashed over 4,000 jobs, and acquired a US internet services provider, Ziply Fibre.
However, macro headwinds are delaying the restructuring as it is tough to find the right buyer and right price for its capital-intensive businesses in a weak market. The perfect example is the delay in the sale of Northwestel for $1 billion.
To sustain this delay, BCE resorted to a 56% dividend cut to channel its cash flow into $1.8 billion in interest expense and acquisitions. That explains the dip in the dividend yield.
Why is BCE still a good stock to invest in for the long term?
BCE is now focused on reducing its costs and balance sheet debt. Thus, it has reduced the long-term dividend payout target to 40–55% of free cash flow (FCF) from the previous 65–75%.
It plans to increase FCF by focusing on business services, such as Ateko managed services, cybersecurity, and Bell AI Fabric, which caters to colocation and data centre connectivity services. Bell AI Fabric launched its first artificial intelligence (AI) data centre in June.
The second quarter’s revenue reflects the shift in focus. Its Communication and Technology Services (CTS) revenue surged 1% as an increase in internet and business services revenue more than offset a 0.3% decline in wireless revenue. Bell Media revenue surged 3.8% as an increase in digital ad and DTC subscription revenue offset a decline in broadcast TV and radio station revenue.
The company has bottomed out, and now the restructuring effect is showing. BCE has tweaked its dividend reinvestment plan (DRIP). Instead of offering treasury shares, it is buying back shares from the market and distributing them as DRIP shares, which will help it reduce equity dilution.
How much annual passive income can this stock give?
If you buy 100 shares of BCE for $3,408 in 2025, you can get $175 in annual passive income at an annualized $1.75 dividend per share. The company may not grow its dividend in 2026. However, it could accelerate its dividend growth once the high-margin AI and cybersecurity business boosts FCF. It did so in the past. After slashing dividends by 48% in 2008, BCE increased the dividend by 116% in 2009 to make up for the cut. History could repeat itself.
Among Canadian telcos, BCE offers shareholders exposure to the US markets and data centre connectivity. It has partnered with HIVE Digital Technologies, BUZZ high-performance computing, and Perplexity to provide AI infrastructure. I am bullish on its AI focus, which could be a catalyst for its profit margins in two to five years.
