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 745.9% gain. Yet that’s what this one has delivered our subscribers since we first recommended it in April 1995.
That’s an especially impressive jump compared to the 350.5% 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 7.6% 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 745.9% 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 2.10 million residential customers in Ontario, Quebec, Manitoba and the Atlantic provinces. It also had 4.34 million high-speed Internet users and 2.72 million TV subscribers (satellite and fibre-optic). In addition, it sells wireless services to 12.6 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.
In the quarter ended June 30, 2023, BCE added 111,282 new wireless subscribers (net of cancellations) under long-term contracts. That’s up 33.8% from the year-earlier quarter. The telecom also added 24,934 (net) high-speed Internet users, as well as 11,506 (net) fibre-optic TV subscribers.
Those new subscribers lifted the company’s overall revenue in the quarter by 3.5%, to $6.07 billion from $5.86 billion a year earlier. That beat the consensus forecast of $6.05 billion.
However, higher interest costs cut earnings before unusual items by 8.7%, to $722 million from $791 million. Due to more shares outstanding, per-share earnings declined at a faster rate of 9.2%, to $0.79 from $0.87.
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 2023, payment. The new annual rate of $3.87 yields a high 7.6%.
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 14.7 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.
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.
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