The big Canadian telecom stocks have been punished severely in recent years. Arguably, the damage has been overdone such that the names might be considered deep-value plays for those willing to hang in and embrace the choppy ride en route to an eventual turnaround.
For now, growth is hard to come by, as management looks to effectively manage costs while also considering the path forward with new drivers (think AI data centres) while balancing the generous payouts.
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A tale on two tumbling telecoms
Though there was a gap of around a year between the dividend cuts of BCE (TSX: BCE) and Telus (TSX: T), I think that both dividend payers, which both yield close to 5.5%, are now reliable for passive income investors who need a steady, well-covered payout. But the big question is whether BCE or Telus is the better pick now that dividends have been chopped by more than half and the negative trajectory continues to dominate. For those who are easily rattled by volatility, perhaps neither name is a great fit at current levels.
But, for the most part, I think there’s so much negativity that’s already been priced in. And while I have no idea what it’s actually going to take for a bottom to be put in and for a sustainable rally to kick off, I like the risk/reward to be had from both names over the next five years. Of course, neither name is timely, but I think that expectations are low enough such that BCE and Telus might just be able to impress.
For two long-time laggards that have disappointed, it may seem like a long shot to envision both firms impressing and delighting for a change. While I could be wrong, I think that both stocks are closer to a bottom than the top. But, of course, that’s not saying much, especially since T stock has crashed 60% while BCE has fallen nearly 56%.
As both firms improve the state of their balance sheets while investing opportunistically and, of course, paying what remains of the formerly massive dividend to investors every quarter, I think there’s reason for hope.
BCE might be closer to a bottom
Given that BCE slashed its payout well before Telus, one could make a case that the firm is a bit further along in its turnaround. It’s had around a year to put money that would have gone back into shareholders’ pockets to work. And while the dividend cut was painful, delaying the inevitable felt ill-advised.
With a solid fibre presence south of the border and data centre efforts that might evolve into something special, I wouldn’t sleep on BCE, especially at 12.6 times forward price to earnings (P/E). Sure, it’s not as enticing as the 4.8 times trailing P/E, but nevertheless, the name seems fairly priced.
With Telus’s dividend cut fresh in the minds of investors and the stock showing no signs of slowing down as the slide continues, I’d look to steer clear for now, even as the firm follows a similar playbook as it cuts debt and moves on.
As the cheaper stock with the less-horrid chart (they’re both not great), BCE takes the cake as the slightly better bet. Though, I’m in no rush to buy either stock right here, given the severity of industry headwinds.
