If you’re a fan of tax-free income, it might be worth stashing a dividend payer at the very core of your TFSA (Tax-Free Savings Account), especially as markets look destined for an unavoidable correction. While it seems like too turbulent a time to put new TFSA money to work, I’d argue that the best deals tend to arise when stocks start looking lower, as they tend to do from time to time.
While markets moving sideways or lower might seem like an alarm bell of sorts to lighten up, take profits, or perhaps check out of the markets for a while, I’d view them more as opportunities to put some extra cash to work, especially since inflation might not be done driving prices of everyday goods and necessities higher.
With the Bank of Canada (BoC) pausing, keeping rates at 2.25%, even amid the war in Iran and the spike in oil prices, I think the wealth-eroding effect of inflation could worsen in the coming quarters. Whether an inflation resurgence hits savers where it hurts again, though, remains the big question. Either way, inflation is a force that should convince savers to invest in the stock market. And in this piece, we’ll cover a high-yielder that can help investors offset any potential rises in living costs.
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BCE stock has a steady 5% yield, but there’s more to love
Consider shares of telecom titan BCE (TSX: BCE), which is perhaps best known for slashing its dividend by close to 50%. Indeed, it was a surprise to see a long-time dividend payer make the move, but I do think it’s for the best as the firm looks to course correct. So far this year, the stock is up close to 9%. That’s a solid gain, which unfortunately, has pushed the yield a hair below the 5% mark (4.9%).
Still, the stock reeks of deep value, and with a slew of cost-saving moves as well as a pivot towards AI infrastructure, I think it’s about time that investors gave the name a second look as it looks to win back the love of investors who may have been heartbroken that moment BCE slashed its payout.
Whether we’re talking about the Bell AI Fabric and its potential to bolster cash flows, the careful deleveraging of the balance sheet, or the potential for telecom costs to move lower while wireless rates stay resilient (recent signs suggest churn is becoming less of an issue), I do think BCE stock is starting to look enticing again. With a technical bottom likely in the books and relatively recent outperformance, perhaps the name isn’t just another value trap. As the firm leverages AI to save costs, I’m more inclined to view BCE as a long-term AI infrastructure winner.
The debt load is hefty, but more manageable
While the debt levels remain quite elevated, let’s just say I’m a bigger fan of the cash flow trajectory moving forward. The dividend cut, workforce reduction, and modest capital expenditure requirements might work in the firm’s favour as it goes after the debt pile while potentially looking to reward shareholders for their patience.
In the meantime, investors should buckle their seatbelts, as industry-specific volatility is likely looming. The good news is that the correlation to the TSX Index is low at 0.64, making BCE a worthy dividend payer to consider if you’re looking for opportunities to zig when markets zag.
