It’s hard to catch a falling knife, especially in a name that recently reduced its dividend. Of course, a double-digit percentage yield just isn’t on very sound footing, at least when it comes to individual firms. With the rise of covered call ETFs (and especially ones with cash leverage), a double-digit yield can be more durable than meets the eye. But, for the most part, chasing yield or braving a massive multi-year bear market comes with its own share of risks.
Any way you look at it, BCE (TSX: BCE) stock has been punishing to own if you’ve been averaging down over the years. The stock is now sitting off close to 62% from its early-2022 peak.
And while early-2024 seemed to feel like a turning point, the shares proceeded to continue lower into year’s end as pressure mounted and doubts about the sustainability of the dividend (whose yield was rocketing higher at the time) grew by the day.
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BCE’s dividend was reduced, but it’s still bountiful and safer
BCE’s dividend was the talk of the town for a while, but now that the payout has been reduced, with shares continuing to find their way to new multi-year lows, questions linger as to whether those who’ve been averaging down should just fold on their positions altogether, especially as the economics of the industry become that much tougher with the rise of satellite connectivity. Despite the dividend cut, though, the stock still offers a generous (and quite safe) 6.1% yield.
Most notably, Elon Musk’s Starlink, a part of Space Exploration Technologies (TSX: SPCX), has made pretty notable strides in the industry this year. And while we probably won’t be getting our mobile data from the stars anytime soon, I do think that such significant innovations introduce considerable uncertainties. And, in my view, I really have no idea what the future holds for the world of mobile data or even broadband. I suppose time will tell.
BCE: The cheap Canadian AI infrastructure play?
For now, BCE stock is going for $28 per share with a price-to-earnings (P/E) multiple hovering just north of 4 times. Bottom-fishing could continue to be difficult, especially as the shares look to experience another leg lower.
What I find most interesting about BCE is how its AI data centre projects (data centres buildout plays have also been out of favour these days) could pan out as the AI revolution progresses. Yes, such buildouts have been costly, and there’s concern that ROIs could be less-than-stellar. Either way, though, I do think sovereign AI infrastructure could be a good place to be in the coming decade, especially as the nation looks to invest in its own homegrown capabilities.
As the first phase of the Saskatchewan data centre moves ahead next year, I’m sure investors will be watching very closely to see how the efforts move the needle.
Indeed, it’s not like BCE is being overly aggressive on the effort like some AI infrastructure builders south of the border (especially the ones deep in debt). Either way, though, there’s ample debt that needs to be taken care of before interest rates have a chance to creep higher. Undoubtedly, the debt and risk of higher rates have definitely been on the minds of the bears of late.
BCE looks like a deep-value buy
Personally, I think BCE needs to take baby steps to get its stock moving higher again. That means hitting deleveraging targets and getting free cash flow back on track.
Fortunately, I do think the dividend reduction could get things moving a bit faster. While I don’t think shares have bottomed yet, I do think that the stock is more of a buy than a sell, especially now that some AI-related catalysts are in sight. They might not offset industry headwinds anytime soon, but I don’t think they have to.
