For years, Canada’s telecom stocks have been viewed as some of the best options for income-seeking investors. That’s because they not only offer a recurring revenue stream with a defensive moat, but also annual dividends that were among the best on the market.
While those telecom stocks still pay respectable annual dividends, their perceived safety has shifted following a period of heightened interest rates and dividend cuts.
Between BCE (TSX: BCE) and Telus (TSX: T) the key question among investors is which one is a safer income stock.
Let’s try to answer that question by taking a look at both.
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The case for BCE’s annual dividends
BCE provides wireless, wireline, TV and internet subscription services. The company also operates a large media segment that is complementary to its core business. Both segments generate recurring revenue that helps fund its dividend.
BCE’s business has improved since it was forced to slash its dividend back in 2025, and there are encouraging signs in the latest quarterly update.
In that most recent quarter, revenue increased 2.2%, while adjusted EBITDA rose by 0.9%.
The company also reported fibre subscriber growth across both Canada and the U.S.
Turning to income, BCE pays a quarterly dividend that carries a yield of 5.8% as of the time of writing. That works out to $1.75 per share annually, meaning that a $5,000 investment in BCE will generate just over $280 each year. That’s enough to create more than a few new shares each year from reinvestments alone.
At that current rate, BCE’s dividend obligation is approximately $1.6 billion. Free cash flow forecasts for 2026 come in between $2.1 billion to $2.3 billion. That works out to a range of 71% to 78%.
Lease payments further reduce that flexibility. In the third quarter alone, free cash flow fell from $854 million to $556 million after lease principal payments.
The case for Telus
Telus reduced its quarterly dividend by 55% in July of this year. That pushed its annualized dividend down to $0.75 per share. As of the time of writing, that gives the dividend a yield of 6%.
That cut came after Telus suspended its dividend growth model.
Fortunately, the smaller dividend creates a more manageable obligation. Given the current shares outstanding, maintaining Telus’ reduced dividend for a full year would require about $1.2 billion.
The company is forecasting free cash flow of $1.8 billion this year, putting that annualized dividend obligation at approximately 66% of forecast free cash flow.
Despite the lower number, Telus is much earlier in its turnaround when compared to BCE. In the most recent quarter, free cash flow declined 35% to $396 million, while adjusted EBITDA dropped 5%.
Telus is pursuing asset sales and has announced an efficiency program targeting approximately $900 million in annual cash savings by the end of 2028.
Which is the safer income stock?
Both Telus and BCE offer investors an income-producing stock that has plenty of risk. Both stocks have endured dividend cuts in recent years. And both have completed, or are considering, asset sales.
Fortunately, the lower dividend payments can now free up cash for debt and investment.
Between the two, Telus is the better opportunity right now based on dividend sustainability. Its reduced annual commitment consumes a smaller portion of forecast free cash flow. BCE’s additional lease payments make it less comfortable of a pick.
