When it comes to finding high-quality passive-income generators, there’s no question that BCE (TSX: BCE) has long been one of the best dividend stocks on the TSX.
There are plenty of reasons why BCE is such a popular dividend stock.
First off, it’s a mature business in the highly defensive telecom industry. That means growth is typically slow but reliable, which makes it ideal for steady dividends.
Furthermore, telecoms like BCE provide essential services like phone, internet, TV, and wireless that people and businesses need every day, no matter what the economy does. That’s why BCE has been able to pay and increase its dividend consistently for decades.
On top of that, BCE owns long-life assets like fibre networks and cell towers that generate huge cash flow year after year. These assets require upfront investment but then produce predictable revenues from subscriptions and contracts.
Moreover, the business has low churn because switching providers is a hassle, and regulations protect the industry from too much competition. That stability allows BCE to return billions to shareholders through dividends.
Therefore, for years, the stock has been a favourite for income seekers because of its high yield and history of annual increases. Even in recessions, demand for communication services holds up, making BCE one of the most reliable dividend payers out there.
Recently, though, BCE’s dividend has been in the spotlight. So, let’s look at why BCE is generating so much interest today and whether the stock is worth buying in this environment.
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Why BCE’s dividend has been in the spotlight lately
Over the last year, BCE’s dividend has been in the spotlight for all the wrong reasons. Last May, the company had to cut its payout for the first time in decades.
That cut came after years of higher capital spending that impacted free cash flow. BCE poured billions into building out its 5G wireless network and expanding fibre optic infrastructure.
That spending was necessary because the telecom industry went through a massive arms race. Competitors were all investing heavily to upgrade networks for faster speeds and better coverage.
Furthermore, the capital expenditure surge was negative in the short term because it ate into cash available for dividends. But it was essential for long-term competitiveness. Without it, BCE would risk falling behind as consumers demand faster internet and more reliable wireless. Now that most of the heavy spending is behind us, though, BCE is in much better shape.
So, with the dividend cut in the rearview, the stock is not only in a much stronger position, but the new networks will drive more growth as communications keep evolving.
Faster speeds continue to create and enable new services like streaming, remote work, and IoT devices, which should boost revenues over time.
The dividend stock is positioned for stronger growth ahead
Looking forward, BCE is positioned much stronger now that the majority of its capital spending is in the past.
Furthermore, the company has cut costs, streamlined operations, and continues to focus on high-margin areas like wireless and fibre.
So, going forward, BCE’s free cash flow should begin to meaningfully improve this year and beyond, which could mean a return to dividend increases as the economy and industry continue to normalize.
In fact, analysts expect that could happen in the next one to two years as revenues from new networks ramp up. Furthermore, continued interest rate cuts could be a significant catalyst for BCE over the next few years.
So, with the dividend yield sitting at roughly 4.9% and with BCE in a much better position today than it was 12 months ago, there’s no question that it continues to be one of the best dividend stocks that Canadian investors can buy and hold for the long haul.
