Blue chips stocks are best known for their stability and dependable dividend yields, of course.
They’re not necessarily the stocks you pick for a 782.2% 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 399.8% 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 7.2% 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 782.2% gain since we first recommended it in April 1995. That’s almost 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 2.06 million residential customers in Ontario, Quebec, Manitoba and the Atlantic provinces. It also has 4.42 million high-speed Internet users and 2.73 million TV subscribers (satellite and fibre-optic). In addition, it sells wireless services to 12.8 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.
BCE cuts jobs at media division
BCE, through its Bell Media division, owns and operates 35 conventional TV stations, 31 specialty and pay-TV channels, and 109 radio stations. This division accounts for about 11% of the company’s total revenue, and 5% of its earnings.
Due to slowing advertising revenue, Bell Media now plans to sell or close nine of its radio stations. It will also merge some of the news-gathering operations in its other broadcasting operations, including CTV and BNN.
In all, BCE will cut 1,300 jobs, or about 3% of its total workforce. The company has not yet said how much it expects to pay in severance and other costs.
Blue Chip Stocks: BCE’s capital spending is already delivering results with more to come
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.
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.
The company continues to benefit from strong demand for mobile phone service due to the launch of new smartphones and the expansion of its ultrafast 5G wireless networks.
In the quarter ended September 30, 2023, overall revenue rose 0.9%, to $6.08 billion from $6.02 billion a year earlier. However, higher interest costs cut earnings before one-time items by 7.5%, to $741 million from $801 million. Due to more shares outstanding, per-share earnings declined at a faster rate of 8.0%, to $0.81 from $0.88.
BCE recently acquired additional 5G wireless spectrum from the Canadian federal government. The company paid $518 million, which is equal to 23% of the $2.24 billion, or $2.45 a share, it earned in the nine months ended September 30, 2023.
BCE’s 5G network is now available to 85% of Canadians. As well, 51% of Canadians can now access its fastest wireless service, called 5G+.
The company recently announced that it will cut its capital spending in response to a decision by the Canadian Radio-television and Telecommunications Commission (CRTC) that forces it to open its high-speed Internet systems in Ontario and Quebec to smaller competitors.
Since 2020, BCE has spent $18 billion on upgrades to its fibre-optic Internet and wireless networks. It will now cut capital spending by $1 billion over the next two years.
It’s unlikely that the lower spending will significantly impact BCE’s earnings. However, the lower outlays will free up more cash for dividends.
Thanks to its strong overall cash flow, the company raised your quarterly dividend by 5.2% with the April 2023, payment. The new annual rate of $3.87 yields a high 7.2%.
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.
BCE is now forecast to earn $3.49 a share in 2024, and the stock trades at a reasonable 15.3 times that estimate.
Recommendation in Canadian Wealth Advisor: BCE Inc. is a buy.
We hope you benefited from this analysis of BCE Inc. The company is just one of the top-performing stock picks of our Canadian Wealth Advisor Investor newsletter.
Of course, not all our picks over the years have produced these kind of spectacular gains. Some, in fact, have led to losses. But all portfolios need superstar stocks like this to offset those inevitable losses.
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