The telecommunications sector has had a really difficult time in the last few years, after being one of the most stable, reliable, and predictable industries for years. Today, the competitive environment has been changing for the worse, and companies like BCE Inc. (TSX: BCE) are paying the price.
In short, telecom stocks like BCE stock have been cut in half. Today, it’s yielding 6% and the company is taking steps to improve profitability and growth. It’s still early stages, but BCE’s telecom assets are increasingly valuable as the world continues to digitize, connect, and incorporate artificial intelligence (AI) into everything.
BCE stock is cheap at this time and that makes it a great TFSA buy.
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BCE stock – where is it now?
The aftermath of everything has not been pretty. Heavy capital spending left BCE stock saddled with debt. Also, the revenue environment remains challenging, which has resulted in weaker earnings.
This hit BCE’s financial health, and its stock price and management eventually capitulated and slashed the dividend. It also caused a rethinking and a refocusing of the business. Essentially, BCE’s business has been rationalized to increase efficiencies. The company has also invested in other, higher-growth areas to counter the slower-growth telecom environment it now faces.
An ideal TFSA stock
There are a few factors that make BCE stock an ideal TFSA stock to buy today. Firstly, it remains a high-yield stock even after its dividend cut, yielding 6%. This dividend income is tax-free within the TFSA, which is a big benefit.
Secondly, the company is seeing improving trends in its telecom business. Wireless trends are improving, with better pricing that’s more rational and reflective of the value that the customer is getting. Also, BCE is posting the lowest churn in three years as well as improved product margins.
Finally, BCE is focusing on growth. For example, the growth in fibre remains strong, connecting increasingly more homes. Also, Bell Media is seeing momentum – ad revenue increased 6% in the latest quarter, and Crave subscribers increased 23% to 5.1 million. Lastly, BCE is building Bell AI fabric, which is an ecosystem of data centres, partners, and solutions for AI support and growth.
Second quarter free cash flow came in at $1 billion – this was down versus the prior year but it was consistent with guidance.
A TFSA dividend stock to buy
BCE’s stock price is currently trading at a mere 11 times this year’s expected earnings, as investors are understandably skeptical and negative on the stock. In my view, however, BCE investors are undervaluing BCE’s dividend yield as well as its business and growth prospects.
The telecommunications industry is an increasingly vital one as the world becomes increasingly connected, with a greater artificial intelligence focus, and a greater demand for data sovereignty. BCE is investing in order to facilitate this and help ensure that Canadians are not left behind in this digital race.
The bottom line
A $10,000 TFSA investment into BCE stock would buy approximately 300 shares. This would generate tax-sheltered annual income of $600. It would also give investors exposure to the upside potential that exists as BCE continues to turn the company around, reduce debt, and invest in higher-growth areas.
