BCE (TSX:BCE) stock’s dividend yield is more or less a must-watch at this point now that it’s above the 10% mark, a level that I previously thought was unfathomable from such a mega-cap titan and one of the bluest blue chips on the entire TSX Index. After sliding 30% year to date, there’s considerable pressure weighing down the $34.5 billion behemoth. While a dividend cut remains a realistic possibility going into the new year, I think that investors in BCE shares ought to be thinking about the long-term game plan rather than the near-term sustainability of the payout.
At these ominous depths, I think it’s only prudent to buy the stock with the assumption a dividend cut will kick in at some point. If it doesn’t, you may just have locked in one of the most bountiful payouts in your investment career. Either way, BCE stock seems like more of a capital gains play at this juncture and a bet on management’s abilities to reverse course over the medium term in the face of some pretty horrendous headwinds. Undoubtedly, the Canadian telecom scene has no shortage of things to worry about.
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The telecom scene could stay under pressure in 2025
Regulatory unknowns, still-high interest rates, the sinking media business, overstretched dividend commitments, and the existential threat posed by the likes of satellite internet companies like Elon Musk’s Starlink, which is reportedly going to provide internet services to some 15,000 homes and firms in Ontario’s northern region. Undoubtedly, it’s pretty expensive to construct cell towers to serve remote communities.
While Starlink seems to be an option for such hard-to-reach areas, I have absolutely no idea where the technology will go over the next decade. Who knows? Internet from space (rather than cell towers) may very well be the new normal a couple of decades from now.
Either way, the implications from the telecom scene are huge. In the meantime, however, BCE and the telecom stocks need not worry about such competitive pressures. Even if Starlink were to move in on the telecom business in the future, Canadian telecoms could compete on the satellite connectivity front.
IA Financial stock: A lesser-known outperformer
In any case, if you’re not willing to reach for shares of BCE on the dip, I think there are more intriguing options out there that can provide secure passive income and growth. Take shares of IA Financial (TSX:IAG), which are up an impressive 48% year to date. The lesser-known $12.5 billion insurer has been doing so many great things of late, and shareholders have been rewarded for their patience.
Though the dividend yield is smaller — currently 2.67% — than it normally is, I view plenty of dividend raises in the cards over the next three years as the company continues taking steps to grow earnings. In the latest round of quarterly results (Q3), IA hiked its dividend by a solid 10%. That’s a very generous raise. And I have a feeling there will be more such raises in the future as IA continues to make a case for why it should be considered one of Canada’s next big dividend growth heroes.
Despite the parabolic run, shares are still cheap at 13.49 times trailing price to earnings. Sure, a yield north of 10% may be more compelling to passive-income seekers. However, if you’re looking for total returns, I think IAG stock is worth consideration. Personally, I view IAG and BCE shares as great pick-ups together. You’ll get a falling knife with a sky-high yield alongside a surging performer that’s poised to keep spoiling investors.
