As market volatility stays a bit elevated going into mid-June, investors might have a shot at buying dips again. But the real question for investors, at least in my view, is whether the next big market scare will prevent investors from getting decent discounts on the way down.
Of course, if the markets are expensive today, given the slate of risks, a correction ought to be viewed as more of a good thing, at least for the lifespan of the current bull market. Whether it’s the conflict in the Middle East, the next big move with interest rates and inflation, or something that’s not on everyone’s radar (very few had the pandemic on their bingo cards going into 2020), investors should be ready to invest through whatever comes our way over the near- to medium-term. In this piece, we’ll focus on the solid dividend payers that are already down by far more than the rest of the stock market.
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BCE is still half off its peak!
Consider shares of BCE (TSX:BCE), a crashed dividend stock that, unfortunately, had to reduce its dividend significantly a while back. Despite the cut, though, the dividend still sits in a fairly decent area. Today, the $31.5 billion telecom yields 5.1%. At today’s rates, that’s a pretty decent yield.
Though, of course, it would have been much higher had the firm found other areas to cut that wouldn’t hit passive income investors in the pocketbook. The stock is still down just over 50% from its all-time high, not seen since the brief peak in early 2022. Just because the negative momentum between 2022 and 2024 has slowed does not mean it’s 100% safe to get back into the waters quite yet. Either way, though, I think the dividend is more than safe and actually prefer a more sustainable payout for new investors looking to unlock next-level value.
BCE stock is too cheap
The stock goes for 13.1 times forward price-to-earnings (P/E), which is quite cheap, but industry competition is real, and it’s unclear whether strategic cuts and the reallocation of capital towards growthier areas are enough to power the stock back above the $50 level. At around $33 and change, the name is in a bit of a tough spot after settling in a rather wide range between $30–36 per share. Either the name will breakout after this wide consolidation, or it’ll break down.
Given the potential for a “pricing war” in telecoms, a bit of margin compression should be expected. It’s harder to grow, it’ll get pricier to upgrade the network if rates march higher (high inflation and the oil shock could result in rate hikes from the Bank of Canada), and it’s unclear what the longer-term implications of SpaceX’s Starlink will be. In my humble opinion, satellite connectivity is the next frontier that could challenge the cell tower moat possessed by Canada’s top telecoms.
Personally, I have no idea how it’ll play out. I think teaming up with the likes of SpaceX or another satellite connectivity firm is the way to go. In any case, things are highly uncertain, and as telecoms find dance partners in satellite connectivity, the big question is how much of a cut the telecoms will lose to the likes of the firms that own the orbital infrastructure that’s beaming down the data. I think BCE already faces a hostile environment and great uncertainty priced in. In the meantime, there are real cash flows coming in that’ll line the pockets of investors who stay the course.
