High-yield stocks offer investors the opportunity to lift their portfolio returns and dividend income. Of course, these dividend stocks carry greater risk than their lower-yield counterparts. But stocks like BCE Inc. (TSX: BCE) offer an interesting risk/reward profile that makes them worth considering.
As you know, BCE has had a rough time in the last few years, and BCE’s stock price is down 38% amid telecom industry turmoil and high debt levels. This caused many investors to lose faith in this once highly predictable and reliable dividend stock. But today, BCE’s dividend yield is a very generous 5.7%. As BCE stock attempts to climb its way back, is there a buy case for investors today?
Let’s take a look at third-quarter results. I’ll break it down and review by segment.
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Bell Communications and Technology
Recently released quarterly results from BCE offer glimmers of hope. The first thing I’ll highlight is BCE’s wireless churn rate, which is the percent of subscribers that cancel or fail to renew. This rate came in at 1.1% in the quarter, which was the lowest in four years. It’s going in the right direction.
Similarly, things are also looking up in BCE’s broadband business, which continued to add fibre customers and posted revenue growth of 5.1%. Customer churn was at a record low here, and the opportunity to add more customers on existing fibre networks remains strong.
With regard to pricing, trends are improving. BCE’s average revenue per unit (ARPU) fell 1.7% in the quarter. This compares to a decline of 2.3% in the second quarter. And it clearly shows that the rate of decline is decelerating. Management noted that wireless pricing has improved markedly and that at this pace, they expect pricing growth by mid-2027.
Finally, Bell Business Markets revenue, which accounts for 18% of total revenue, increased 9.2% to $1.1 billion. This was driven by a 41% increase in AI-powered solutions revenue.
Bell Media
One of the highlights of BCE’s results was the strength of its Bell Media division, which accounts for 13% of BCE’s total revenue.
In the quarter, Bell Media posted 9.7% growth in revenue to $803 million and an 8% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $256 million. This strong performance was driven by a 9.5% increase in subscriber revenue, a 20% increase in total digital revenue, and a 9% increase in advertising revenue.
Capital spending to transform BCE
BCE’s capital intensity is rising, as the company is building out its fibre network and its AI fabric network. The AI fabric network delivers a secure, sovereign, sustainable ecosystem of data centres, partners, and solutions. This investment reflects an insatiable demand environment for compute. BCE is well-positioned in this ecosystem, which will be backed by its fibre network.
Building AI fabric infrastructure is an expensive undertaking, but it is one that should pay off in the long run. It’s important to remember that nothing is being built without having data centre contracts in hand first. At this time, existing contracts for these AI data centres represent $500 million in annual EBITDA. As data centres come online and they start generating revenue and earnings, their value will become increasingly evident.
The bottom line
So, what could one earn by investing $10,000 into this 5.7% yielding stock? Well, BCE’s dividend yield would earn you $572 of annual dividends. And any capital gains on BCE’s stock price, which could be substantial over the long term, would add to your return. BCE is still a recovery story, but it’s one that has strong potential for capital gains and a generous dividend yield to lean on while we wait.
