Shares of BCE (TSX:BCE) are worth another look now that much of the lingering disappointment that followed the unfortunate dividend reduction has mostly faded away. Undoubtedly, as passive income investors, we never want to hear that a firm behind a stock in our portfolio has been forced to reduce the payout by a large magnitude. Add the post-cut volatility in shares into the equation, and perhaps it’s not a mystery as to why some have chosen to move on, either to another high-yield dividend-paying telecom or perhaps something in the financial or energy sectors, where yields and capital appreciation have moved together in the past year.
Why settle for tremendous industry headwinds and pressure when you could simply rotate into a top-notch pipeline stock that’s firing on all cylinders, with the dividend yield and growth to show?
And with the Big Six Canadian banks looking quite unstoppable here, even as the yields look to compress further, it feels like playing the long game with BCE could mean waiting around for total returns that might not be nearly as stunning as those offered in other sectors.
While I wouldn’t dismiss BCE as a name that’s destined to keep underperforming the broader TSX Index, I do think that dividend investors should pay extra attention to the path forward and the potential for dividend growth as the firm looks to get back on the right track, perhaps a bit faster than some of its hard-hit peers in the space.
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So, what’s new with BCE and its dividend?
And is the stock finally worth a second look as investors look for a lower correlation to the rest of the market alongside deeper value and a still-decent payout?
Of course, after the dividend cut, the payout is no longer a lofty commitment. The company has financial wiggle room and the potential to invest in initiatives that could help save it significantly over the long haul. In the latest quarter, the firm reported a tough quarter that saw net earnings take a step back, even as revenue rose. The same headwinds facing telecom that weighed down the stock in these past four years are still very much in play.
Now down more than 55% from all-time highs, though, I do see an absurd amount of value if management can execute on its game plan. It’s quite a bold move to look to U.S. infrastructure as a source of growth. But I do think that the fibre buildout south of the border is an intriguing move that could help power a bounce at some point down the line. Add the wild card of AI infrastructure bets into the equation, and it feels like BCE is adapting to the new age.
The bottom line
For now, though, investors don’t seem to be rewarding the firm as much for some of its efforts that might not pay off until the long haul. Either way, I like the growth trajectory that the firm has been looking to pursue. And while time will tell when telecom industry headwinds will begin to fade, I must say that the 5.3% dividend yield is in a perfect spot. It’s just large enough to satisfy many Canadian income investors without having to act as a drag on the firm as it looks to invest opportunistically.
In short, the dividend looks safe, and I think it’s time to give the name a second look as it hopes to become growthier again. I think staying the course and collecting the payout could be the move, even as shares struggle to find direction after the vicious 2022–24 crash in shares.
