Back in January, I covered BCE Inc. (TSX: BCE) and flagged its sky-high dividend that wasn’t covered by distributable cash flow. At the time, the stock was yielding close to 12%, and I remember thinking, “Whoever buys this right now is a sucker. It’s going to be cut.”
Sure enough, in May, BCE slashed the quarterly dividend in half, from $0.9975 per share to $0.4375. That brought the annual payout per share down from $3.99 to just $1.75. Management blamed the usual suspects of regulation, inflation, rising competition in telecom, and even slowing immigration, but it didn’t change the fact that the business simply couldn’t sustain what it was paying out.
Fast forward to September 4, BCE now yields 5.17% on a forward annualized basis, but the stock itself is down more than 30% over the past year. Even at this “reset” level, I still consider it an avoid. If you want passive income from infrastructure-like investments without the baggage of BCE, there’s a monthly high-yield exchange-traded fund (ETF) that I think deserves your attention instead.
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Why consider an ETF?
The risk factors BCE’s management blamed for its dividend cut (regulation, inflation, competition, and slowing immigration) are mostly idiosyncratic. In other words, they’re specific to BCE and how it runs its business.
That’s why relying on one stock for income is dangerous. By diversifying across a basket of “BCE-like” investments, you reduce the risk that one company’s poor balance sheet or bad management decisions sink your returns.
So, what is a “BCE-like” investment? Strip away the poor management, excessive debt, and history of over-promising/under-delivering, and you’re left with some attractive traits: inflation-linked cash flows and hard assets.
Telecoms absolutely qualify here since they own critical infrastructure like fibre networks and wireless towers, but it makes little sense to put all your chips on the most indebted, least efficient operator. Buy two or three telecoms instead, and then expand the scope to companies that own utilities, pipelines, and even railways.
How UMAX Works
That’s the advantage of Hamilton Utilities YIELD MAXIMIZER™ ETF (TSX: UMAX). It doesn’t just own BCE. It also owns its major competitors and other infrastructure-backed names across utilities, railways, and pipelines.
UMAX doesn’t stop at owning the stocks, though. It overlays a covered call strategy, selling options on about 50% of the portfolio. These contracts are written at the money, meaning the fund gives up most potential upside if share prices rally. The trade-off is higher and more reliable income, since those option premiums flow straight back to investors.
The result is a yield of 14.25% annualized, paid monthly rather than quarterly. And unlike BCE, UMAX hasn’t forced investors to stomach a 50% dividend cut. It’s an active structure designed for steady, above-average income, and so far, it’s delivered.
The Foolish takeaway
I can’t understand why some investors remain loyal to BCE. This isn’t a team sport. Staring at a ticker symbol won’t make the company’s debt shrink or its management better. If you’re holding BCE for the income, it may be time to cut your losses and replace it with a diversified, purpose-built infrastructure income ETF like UMAX.
