It certainly hasn’t gotten any easier to be a net buyer of the dip in Canadian telecom stocks. And while high-yield dividend seekers might wish to start deploying some cash with the hopes that shares will bottom out at some point over the next couple of quarters, I think that paying careful attention to industry trends as well as the resilience of the fundamentals is a far better way to go than just pursuing yield.
As we found out in the case of BCE (TSX:BCE), which chopped its dividend down a while back, going based on yield can be the perfect formula for a dividend cut and potentially further pains as shares sag further.
After the cut, the new dividend, I think, looks safe, sound, and ready to grow at a decent annualized rate from here, even if there’s not much in the way of relief for the hard-hit telecom. Today, shares of BCE trade at just north of $32 per share, sporting a 5.5% yield. That’s generous, but still nowhere close to matching the yield of its top telecom rival in Telus (TSX:T), which actually possesses a jarring 8.8% yield.
Telus and BCE shares are under pressure again
Undoubtedly, I think Telus might need to hold off on further dividend increases at a time like this, even though I’m sure it’d be a bit of a pain to put the multi-year dividend growth streak to rest. A close to 9% yield on a stock should probably scream unsustainable.
And while the latest implosion in shares of Telus doesn’t paint a nice picture moving forward as earnings growth stalls, while investors consider the weight of the debt, I am tempted to punch a ticket into the name for the dividend alone, even though it might be destined for the chopping block within the next two years if things don’t change for the better soon. With limited catalysts, though, I’m not so sure what the future holds.
Could Telus slash its dividend in the future as BCE did?
Like BCE, I do think that Telus might have to follow suit with a dividend reduction. Though I’m sure a smaller reduction might be better received by shareholders, especially since I do think there’s some risk of a reduction already priced into the shares at $18 and change.
Though the telecom space is a tough place to invest these days, especially if there are more big-name analysts ready to downgrade the stock or lower the price target due to the last few months’ worth of share price depreciation, it might be best to start nibbling while most other investors think there’s no hope in sight.
Maybe there is a chance that the sky-high dividend yield stays intact. And if it does, those who buy at these levels might be able to lock it in for the long haul at a time when risk-free yields are the slimmest they’ve been in years. Undoubtedly, GIC rates are unattractive, and I think that makes BCE or Telus a far more enticing bet, even though there are serious risks to consider amid negative momentum.
Bottom line
Between BCE and Telus, I’d have to go with BCE. The dividend looks to be on steadier ground. It also has a ridiculously low 4.8 times trailing price-to-earnings (P/E) multiple. Though it is worth noting that the forward P/E is just north of 11 times. Either way, I view BCE as cheap on both fronts.
