Top performer BCE gives you a 7.9% yield right now

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 733.8% 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 403.3% 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 7.9% 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 733.8% gain since we first recommended it in April 1995. That’s much higher than 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 2.02 million residential customers in Ontario, Quebec, Manitoba and the Atlantic provinces. It also has 4.47 million high-speed Internet users and 2.73 million TV subscribers (satellite and fibre-optic). In addition, it sells wireless services to 13.0 million users across Canada.

BCE cuts jobs and sells radio stations

Due to slowing revenues at its landline and media operations, BCE now plans to cut 9% of its workforce. It’s also selling 45 of its 103 radio stations. These moves should cut its costs by $150 million to $200 million in 2024. Those annual savings should rise to $250 million, starting in 2025.

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. In 2023, revenue gained 2.1%, to $24.67 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 2023, earnings fell 4.3%, to $2.93 billion ($3.21 a share).

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 December 31, 2023, BCE added 128,715 new wireless subscribers (net of cancellations) under long-term contracts. The telecom also added 55,591 (net) high-speed Internet users, as well as 23,537 (net) fibre-optic TV subscribers.

Those new subscribers help offset lower advertising revenue at the media division. As a result, the company’s overall revenue in the quarter rose 0.5%, to $6.47 billion from $6.44 billion a year earlier. That matched the consensus forecast.

Thanks to an ongoing cost savings program, earnings before unusual items gained 7.0%, to $0.76 a share (or a total of $691 million) from $0.71 a share (or $654 million). That topped the consensus estimate of $0.73 a share.

BCE recently acquired additional 5G wireless spectrum from the Canadian federal government. The company paid $518 million.

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+.

Meanwhile, the Canadian Radio-television and Telecommunications Commission (CRTC) recently announced new requirements that force BCE to open its high-speed Internet systems in Ontario and Quebec to smaller competitors.

As a result, the company plans to spend $4.1 billion on capital upgrades in 2024, down from $4.58 billion in 2023.

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 is raising your quarterly dividend by 5.2% with the April 2024, payment. The new annual rate of $3.99 yields a high 7.9%.

BCE is now forecast to earn $3.13 a share in 2024, and the stock trades at a reasonable 16.2 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.

Subscribe to Canadian Wealth Advisor so you can access many more market-leading Buy recommendations for maximum returns.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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