If you’re looking for massive yields, you’ve probably given the Canadian telecom plays a close look over the past couple of months. Undoubtedly, there’s a lot of pressure facing the industry, and the shares of the top players (the Big Three, as they’re often referred to as) have been tumbling. And while there’s not a whole lot to get excited about as the telecom stocks enter another year with less in the way of hope in sight, I still think that income investors might wish to keep adding to their positions as the pain continues.
And yes, the pains for the telecom giants could persist for some time despite recent efforts to turn the tide and improve the state of the balance sheet. BCE (TSX: BCE) did not waste time when it reduced its dividend. And while I think the telecom titan can make up for it by raising the bar on its dividend at a faster rate once the worst of the headwinds pass and the focus returns on growth, investors should be cautious, as the timeline is relatively unclear, especially as we enter a year where consumers aren’t exactly ready and willing to spend heavily.
It’s getting harder to take big market share in the telecom scene, and the price of admission remains as high as ever as capital expenditures to upgrade the network continue to be hefty. Of course, lower interest rates could provide a bit of relief, but if the Bank of Canada is more likely to pause on further rate cuts in the new year, perhaps those seeking a rate-cut winner might be left a bit disappointed, especially since recent action in the telecom names might already suggest such cuts are priced in.
In any case, let’s have a closer look at the two names to see which telecom high-yielder is a better bet.
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BCE
At this juncture, BCE seems to have the healthier, more sustainable dividend, which currently sports a 5.45% yield. Of course, that’s because it was reduced previously. And while many investors might not be a fan of a firm with a history of recent dividend reductions, I think that things are slowly getting back on the right track.
It’s been another uneventful year for BCE shares, with the name down just over 5% in the past year. At the very least, though, the negative momentum is slowing down, and that alone might be enough reason for dip-buyers to start building a position.
Though mobile customer growth has been modest, the AI division certainly stands out as a wild card. In any case, cost reductions and perhaps more aggressive promos could be key to getting growth back on track. Perhaps if BCE can find enough cost savings, it can pass on more value to customers.
Telus
Telus (TSX: T) has to be a more tempting buy while the yield sits at around 9.6%. Of course, the dividend growth from here is on pause for now, but that’s okay since the payout is flirting with the 10% mark.
Though analysts think the payout is hefty and due for a cut at some point, I think that the odds of such a reduction are already baked in at $17 and change per share. Though the past-year slip has been more vicious (down 13%) than BCE stock, I continue to view the name as a high-risk, high-yield kind of play that might just pay off, perhaps sooner rather than later. Though Telus is a choppier ride, I prefer it to BCE, primarily because of the chance that the dividend survives this historically difficult period for the firm.
