Blue chips stocks are best known for their stability and dependable dividend yields, of course.
They’re not necessarily the stocks you pick for an 931.2% gain. Yet that’s what BCE has delivered our subscribers since we first recommended it in April 1995.
That’s an especially impressive jump compared to the 375.3% gain for the S&P/TSX Composite index over that time.
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Now we think key investments in the company’s wireless network are set to add significantly to those gains in the coming months and years. It’s why we continue to see this blue-chip pick as a solid pick.
Its high 6.2% yield only adds its appeal.
BCE INC. (Toronto symbol BCE; www.bce.ca) is Canada’s largest traditional telephone service provider. It also offers wireless services and high-speed Internet access. That’s in addition to owning TV and radio stations.
The stock has handed our subscribers a 931.2% gain since we first recommended it in April 1995. That’s more than double the return of the S&P/TSX Composite index in that time. It also doesn’t include the strong dividend income BCE’s high and sustainable yield offers.
We see much more growth ahead for investors.
BCE has 2.14 million residential customers in Ontario, Quebec, Manitoba and the Atlantic provinces. It also had 4.28 million high-speed Internet users and 2.74 million TV subscribers (satellite and fibre-optic). In addition, it sells wireless services to 12.4 million users across Canada.
In 2022, the company’s Wireline business (landline phones, high-speed Internet and TV services) accounted for 49% of BCE’s total revenue and 52% of its earnings.
The Wireless division supplied a further 38% of BCE’s revenue and 41% of earnings. The remaining 13% of revenue and 7% of earnings came from BCE’s Media division. It owns CTV Television, specialty channels, pay-TV services and radio stations.
The company has spent over $22 billion in the past five years to upgrade its wireless networks to ultrafast 5G speeds. That includes replacing copper-wire networks with fibre-optics.
Blue Chip Stocks: Capital spending is already delivering BCE results with more to come
Thanks to those investments, revenue rose 1.4%, from $23.47 billion in 2018 to $23.96 billion in 2019. Revenue then fell 3.8% to $22.88 billion in 2020 as COVID-19 cut revenue from the wireless roaming fees that BCE charges cellphone customers. It also cut advertising revenue for the company’s media operations. As the economy re-opened, revenue recovered 2.5% to $23.45 billion in 2021. Revenue in 2022 improved a further 3.1% to $24.17 billion.
Earnings before unusual items gained 4.9%, from $2.97 billion in 2018 to $3.12 billion in 2019. Due to more shares outstanding, earnings per share declined 1.4%, from $3.51 to $3.46. Earnings declined to $2.73 billion ($3.02 a share) in 2020, but rose to $2.90 billion ($3.19 a share) in 2021 before moving up to $3.06 billion ($3.35 a share) in 2022.
In the most-recent quarter, ended March 31, 2023, BCE added 43,289 new wireless subscribers (net of cancellations) under long-term contracts. That’s up 26.5% from a year earlier. The telecom also added 27,274 (net) high-speed Internet users, up 4.8%. Fibre-optic TV subscribers (net) fell 11.1%, to 10,899. The year-over-year decrease was due mainly to higher customer deactivations attributable to more customers with expired promotional offers and higher churn on its app streaming service following the end of the FIFA World Cup Qatar 2022.
With network upgrades largely completed, BCE’s capital spending should fall about 10% to $4.65 billion for all of 2023. Free cash flow (regular cash flow minus maintenance capital expenditures) should also then rise about 6% to $3.25 billion. Thanks to that strong cash flow, the company raised your quarterly dividend by 5.2% with the April 15, 2023, payment. The new annual rate of $3.87 yields a high 6.2%.
Rising interest payments and a higher tax bill will probably cut BCE’s earnings by 5% to $3.18 a share in 2023. However, earnings could rebound to $3.49 a share in 2024, and the stock trades at a reasonable 17.9 times that forecast.
Including this latest increase, BCE has now raised your dividend by 5.1% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Highest.
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Definitely a performer for the income investors with steady dividend increases and thanks to Pat, has been one of my core investments over the last 13 years. I tend to be more interested in the investments that Pat and his team deem to have a positive outlook for the future. As they say..past performance is not an indication of future returns, but I am staying with and adding to BCE as a steady income is now required in my retirement.
Thanks, Richard. There is no better recommendation than the endorsement of a satisfied customer.