One of the most dreaded phrases for income investors is “dividend cuts”. Those two words can very quickly change how much income a portfolio earns. That’s even worse when that cut stems from a core investment that’s been providing income for years.
There are plenty of examples of dividend cuts on the market, but two recent examples on the market are BCE (TSX: BCE) and Telus (TSX: T). Both offer familiar, well-known businesses and defensive moats. But even that couldn’t stop them from slashing their payouts.
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Why do dividend cuts happen?
To answer that question, let’s look back at what a dividend is. Dividends are payments that a company provides to investors, provided it can afford to do so. When times are tough and the business has less cash available, that can put pressure on the company’s ability to continue paying.
If the dividend repeatedly consumes most of the cash that the company earns, that leaves little room for any unexpected expenses. And that’s where higher borrowing costs or weaker results can make an already stretched payment even harder to maintain.
When that reduction does occur, it can free up money for investment or debt reduction. This allows the business to continue operating while still paying a lower dividend.
Let’s look at both of those scenarios.
The payout can become too expensive
BCE is a perfect example of this. In May 2025, BCE announced a 56% dividend cut. That resulted in its annual dividend dropping from $3.99 to $1.75 per share. That cut followed significant cost-cutting measures that the company did earlier in the year.
The cut followed BCE’s November 2024 announcement that it would pause growth until its payout ratio and debt were moving in the right direction. A rising payout ratio means more of the company’s available cash is going toward dividends, leaving less breathing room. BCE’s payout ratio was 111% of free cash flow in 2023 and hit 125% in 2024.
In other words, there were signs that the stress was there.
And despite cutting the dividend, BCE continued to invest in the business. That includes both network investment and acquiring U.S.-based Ziply Fiber.
The key takeaway here is that BCE was tying future dividend growth to its improving finances. When that improvement didn’t come, management acted and cut the dividend.
That doesn’t mean BCE is a bad investment. In fact, since that cut, the business has improved. In the most recent quarter, BCE reported revenue of $6.2 billion, reflecting a 1.5% increase over the prior year. And as of the first half of 2026, BCE’s payout ratio now stands at 44% of free cash flow.
Dividend growth can change course
Turning to Telus, the company paused dividend growth before reducing its payment. Back in December 2025, Telus announced it was pausing its dividend growth program, holding the quarterly dividend at $0.42 per share while the company pursued higher free cash flow.
Then earlier this past summer, Telus reduced its quarterly dividend to $0.19. That works out to a 55% cut. Telus noted that the reduction would help fund debt repayment and generate $2.7 billion in cumulative cash savings through 2028.
In addition to the cut, Telus revised its full-year free cash flow number from $2.45 billion to approximately $1.8 billion.
Like BCE, this doesn’t mean Telus is a bad investment. Telus still offers an increasingly essential business and also offers some diversification from its digital and health businesses.
What does this mean for investors?
Both stocks had warning signs for investors that came in the form of free cash flow and rising payout ratios.
Telecoms are also capital-intensive businesses that rely on financing to fund large infrastructure improvements. In other words, higher borrowing costs can add pressure to an already stretched dividend.
Both Telus and BCE stocks had to cut their dividends, but their progress since those decisions has differed. BCE’s improved results highlight the nearly two years since it paused dividend growth and turned focus on cutting costs.
