BCE (TSX:BCE) stock is finally out of the blue. The dip in fundamentals because of company-wide restructuring is behind BCE, and now things are reviving. However, the recovery came at a cost, including a 56% dividend cut in 2025 and a pause in dividend growth until the balance sheet strengthens.
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BCE’s 2025 dividend cut: A good and brave decision
BCE’s 2025 dividend cut was imminent as it has been paying more than 100% of its free cash flow as dividends for four years. Such a financial arrangement is not sustainable in the long term, especially when the company’s debt is increasing to new highs.
This situation arose because the telecom regulator opened BCE’s and Telus’s fibre infrastructure to small competitors. These competitors did not have a huge debt on their balance sheets, nor had they spent millions on building fibre infrastructure. Hence, when they got access to such infrastructure, they resorted to a price war to gain market share. However, the small companies also have to invest in fibre infrastructure to keep the competition fair.
BCE and Telus faced the initial brunt and reduced their capital spending. They started selling non-core assets to reduce the debt taken to build the fibre infrastructure.
BCE is out of the woods
BCE’s fourth-quarter 2025 earnings show the year-over-year dip in average revenue per user (ARPU) has reduced to 0.8% from 2.7% in the same quarter of the previous year. This hints that the price war has ended. The postpaid churn rate has also reduced for the third consecutive quarter.
The acquisition of U.S.-based Ziply Fibre contributed $232 million to the revenue. Moreover, its artificial intelligence (AI) solutions, Ateko, Bell Cyber, and AII Fabric, contributed to the revenue. These new revenue streams offset the lost revenue from the closure of several “The Source” retail stores and radio stations.
BCE reported 0.2% increase in revenue in 2025 after a 1.1% decrease in 2024. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 0.7% to $10.66 billion, and free cash flow (FCF) increased 10% to $3.18 billion in 2025. Its dividend payout ratio was 64% of FCF in 2025 from 125% in 2024.
On the road to recovery
The telco aims to achieve a 40-55% dividend-payout ratio by growing FCF at 15% compounded annual growth rate (CAGR) between 2025 and 2028. To grow its FCF, BCE is looking to grow its revenue at a 2-4% CAGR, reduce its net debt, and achieve $1.5 billion in cost savings by 2028. For this, it will close its 3G services in the first quarter of 2027.
The telco-turned-techno aims to reduce its net debt-to-EBITDA ratio from 3.8 in 2025 to 3.5 by 2027 and 3.0 by 2030. It will use $500 million in proceeds from the sale of MLSE to repay debt in the first quarter of 2026.
The improving fundamentals show that BCE is out of the woods and on the road to recovery.
What’s going on with BCE’s dividend?
BCE will sustain its reduced annual dividend of $1.75 per share until it reaches the target payout ratio of 40-55% of FCF. That could be achieved by 2028 if the telco meets its set financial targets. After 2028, BCE could consider growing its dividend once again in line with FCF growth.
The telco faced a similar situation in the 2008 Financial Crisis, when it slashed its dividends by 49%. However, it had a quick turnaround and increased its dividend by 116% to make up for the cut.
The 2025 dividend cut may stay longer as there has been a structural shift in the business, with the 5G upgrade, business model revamp, and entry into new businesses of AI and cybersecurity.
