Despite the sharp share price declines over the past couple of years, I’m still overall bearish on Canada’s oligopolistic telecom sector, particularly BCE (TSX:BCE).
As of July 9, the stock is already down roughly 7% year to date as of July 9 on a price return basis, yet I still think investors should be cautious before assuming the worst is behind it. The issue is less about competition and more about the underlying growth outlook.
For years, Canada’s rapid population growth helped drive demand for new wireless subscriptions, internet connections, and fibre installations. Much of that growth came from immigration, international students, and temporary foreign workers.
That tailwind has now reversed. With Mark Carney’s federal government sharply reducing immigration targets, one of the industry’s largest sources of subscriber growth and new connections is slowing.
BCE hopes artificial intelligence infrastructure can become part of that next growth story. The problem is that data centres are extremely capital-intensive and take a long time (if ever) to pay off.
Building that business requires billions of dollars in investment; at the same time, management is trying to reduce debt and improve leverage. Those two priorities naturally compete for the same pool of cash, and that brings us to the dividend.
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What happened to BCE’s dividend?
The biggest event in BCE’s recent history was its dividend reset in mid-2025. The company reduced its annualized dividend by approximately 56%, lowering the payout from $3.99 per share annually to $1.75 per share.
Before the reduction, BCE had developed the characteristics of a classic yield trap. The dividend had become increasingly difficult to support as cash flow came under pressure and investors began questioning its sustainability.
Today, the picture looks much healthier. Management now targets a long-term dividend payout ratio of 40% to 55% of free cash flow. Based on current estimates, the dividend consumes roughly 43% to 50% of free cash flow, comfortably within management’s target range.
For perspective, BCE generated approximately $804 million of free cash flow during the first quarter of 2026 alone, giving the company considerably more room to support its dividend while continuing to invest in the business and reduce leverage.
Investors will next hear from management when BCE reports second-quarter 2026 earnings on August 6, 2026, which should provide additional insight into free cash flow, capital spending, debt reduction, and management’s outlook.
Is BCE worth buying now?
The dividend is unquestionably healthier than it was a year ago. Ironically, cutting it may have made the remaining payout much safer. That said, a safe dividend alone is not enough for me to become bullish on the stock.
The company still faces slowing subscriber growth, elevated capital spending requirements, and the difficult balancing act of investing in future growth while continuing to strengthen its balance sheet.
Personally, if I were looking for dependable Canadian dividend income today, I think there are more attractive opportunities elsewhere. In particular, I continue to like asset-light, high-margin businesses such as Canadian oil and gas royalty companies.
Their business models generally require less capital investment, produce strong free cash flow, and avoid many of the infrastructure spending demands facing telecommunications companies.
For now, I think BCE has become a much safer income stock than it was before the dividend cut, but I still believe investors can find stronger long-term dividend opportunities elsewhere.
