Blue chip stocks: BCE aims for faster networks, higher dividends


Today, we review one of Canada’s leading blue chip stocks, BCE Inc. In the highly competitive telecom industry, BCE manages to keep increasing its value and raising its dividend—which it has done 11 times since 2008. The company’s strong assets let it spend money on crucial projects like speeding up its Fibe networks.

BCE is speeding up its networks to profit from demand for faster downloads—both through high-speed Internet and wirelessly.

It can easily afford to make this investments and maintain its dividends, which is why we see BCE as a strong choice among telecoms.

BCE INC. (Toronto symbol BCE; is Canada’s largest telephone provider, with 7.0 million customers in Ontario, Quebec and the Atlantic provinces. It also has 3.3 million high-speed Internet users and 2.7 million TV subscribers.

This business supplies 57% of BCE’s revenue. The company also sells wireless services (31% of revenue) to 8.1 million customers across Canada, and its Bell Media segment (12%) owns CTV Television, specialty channels and radio stations.

In the three months ended March 31, 2015, BCE’s overall earnings rose 12.6%, to $705 million from $626 million a year earlier. But per-share profits gained just 3.7%, to $0.84 from $0.81, on more shares outstanding. Revenue rose 2.8%, to $5.24 billion from $5.10 billion.

BCE lost 15,914 wireless subscribers, net of additions, in the latest quarter. However, it signed up 35,373 new users under long-term contracts, up 3.7% from a year earlier. That’s important, as these customers tend to use smartphones, which generate higher monthly fees than regular cellphones.

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Blue chip stocks: BCE passes one million mark in subscribers for Fibe TV

The company recently paid $29 million for new 2500 MHz radio frequencies (or wireless spectrum) under Ottawa’s latest auction. That should let it expand high-speed wireless service to 98% of Canadians by the end of 2015, up from 91% now.

Meantime, the company is seeing strong demand for its TV offerings: it now has over one million subscribers to its Fibe TV service, more than double the 479,430 it had at the start of 2014.

BCE now plans to increase Fibe speeds in Toronto to 1,000 megabits a second, or 5.7 times faster than its current top speed of 175 megabits. Faster networks will help BCE hang on to its current customers.

The company will spend $1.14 billion on these improvements, which will eventually reach 1.1 million Toronto homes and businesses. It will also speed up its Fibe networks in other cities. These projects are part of BCE’s plan to invest $20 billion in its high-speed networks by 2020.

BCE has also formed a joint venture with the Kilmer Group to buy the Canadian Football League’s Toronto Argonauts.

The partners didn’t say how much they’re paying for the team, but they expect to complete the purchase by the end of 2015. They also plan to move the Argonauts from Rogers Centre to BMO Field, a stadium they partially control through their ownership of Maple Leaf Sports and Entertainment, the private firm that owns several other teams, including the Toronto Maple Leafs (hockey), Toronto Raptors (basketball) and Toronto FC (soccer).

Sports teams typically lose money, but buying the Argonauts enhances the prospects of BCE’s TSN all-sports network, which has the TV and radio rights to all CFL games, including the annual Grey Cup championship game.

BCE’s sound balance sheet will help support these projects. Its long-term debt of $16.6 billion is a manageable 36% of its market cap, and it holds cash of $1.1 billion.

The company expects to earn $3.28 to $3.38 a share for all of 2015, and the stock trades at an attractive 16.5 times the midpoint of that range. BCE has raised its dividend 11 times since December 2008; the current annual rate of $2.60 yields 4.7%.

Recommendation in The Successful Investor: BUY  


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