BCE INC., $42.83, is a buy. The company (Toronto symbol BCE; Shares o/s: 912.3 million; Market cap: $39.1 billion; TSINetwork Rating: Above Average; Dividend yield: 9.3%) currently owns The Source retail chain, which sells consumer electronics through 272 retail stores.
Under a new partnership with electronics retailer Best Buy, it plans to re-brand 165 of these stores as “Best Buy Express” outlets. In fact, it just opened its first new outlet in Surrey, B.C.
BCE continues to own these new stores. It will also close its remaining 107 The Source stores. Best Buy’s well known brand should help draw more customers and improve the profitability of these outlets. They will also exclusively promote BCE’s wireless, Internet, television and home phone services.
BCE Inc. is still a buy.
Comments
Ronald
At the beginning of the year when BCE price was about $54, BCE was recommended as the income Buy of the year. Now, at $43.80, it is still being recommended as a Buy; even though it is paying a dividend that exceeds it’s earnings. I would like to see a realistic calculation showing why the outlook should improve; and taking into account an environment of increasing competition and the seemingly endless need to update technology.
Should I wait until the dividend is cut to reflect actual earnings, the price falls, and I can buy at a more reasonable level?
We still see BCE as a buy, and here’s a look at the stock’s dividend sustainability:
We think that in some cases, the best measure of a company’s ability to maintain its cash dividends is its cash flow per share, rather than its earnings per share.
Earnings per share includes a number of non-cash items such as depreciation/depletion and amortization. These are reported for tax purposes. Those changes also have the effect of distorting regular earnings. So, rather than focus on earnings, we also look at cash flow. That excludes items they don’t have to set aside cash for, including those depreciation charges.
For example, in 2023, BCE made $3.21 per share (excluding one-time items). However, it reported cash flow per share of $8.82—more than enough to cover its $3.99 annual dividend.
Meanwhile, BCE continues to report steady results….and a dividend increase. All this should support its current credit rating.
But more on BCE’s dividend sustainability:
There’s lots of media concern lately about its dividend sustainability. But they are using BCE’s own “free cash flow” figure—which includes capital spending (not just maintenance capital spending)—which in many ways is discretionary—in fact, it’s cutting back on the buildout of its fibre, 5G and 5G+ network infrastructure this year.
While not guaranteed…the payout seems safe.
In fact, the company has just raised its dividend (although the 3.1% increase is below the 5% or so raises in previous years.
The company is cutting back on capital spending and making big job cuts—so that adds to its dividend sustainability.
$$$$$$$$$$$$$
Notably, rival Telus has suffered a somewhat similar drop. BCE is down about 34% from its 2023 high and down 42% from its all-time high in 2022. Telus is down about 28% from its 2023 high and down 39% for its all-time high in 2022.
This indicates that there is likely more to BCE’s (and Telus’s) drop than dividend coverage.
Traditionally, Utilities and so on are said to suffer when interest rates rise—for example, they have a lot of debt, and higher rates make it more expensive to raise money and refinance existing debt.
As well, their shares, which typically offer high yields, compete with fixed-income instruments for investor interest.
All in all, while the stock is down, we think BCE will recover and move higher.
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At the beginning of the year when BCE price was about $54, BCE was recommended as the income Buy of the year. Now, at $43.80, it is still being recommended as a Buy; even though it is paying a dividend that exceeds it’s earnings. I would like to see a realistic calculation showing why the outlook should improve; and taking into account an environment of increasing competition and the seemingly endless need to update technology.
Should I wait until the dividend is cut to reflect actual earnings, the price falls, and I can buy at a more reasonable level?
Thanks for your question.
We still see BCE as a buy, and here’s a look at the stock’s dividend sustainability:
We think that in some cases, the best measure of a company’s ability to maintain its cash dividends is its cash flow per share, rather than its earnings per share.
Earnings per share includes a number of non-cash items such as depreciation/depletion and amortization. These are reported for tax purposes. Those changes also have the effect of distorting regular earnings. So, rather than focus on earnings, we also look at cash flow. That excludes items they don’t have to set aside cash for, including those depreciation charges.
For example, in 2023, BCE made $3.21 per share (excluding one-time items). However, it reported cash flow per share of $8.82—more than enough to cover its $3.99 annual dividend.
Meanwhile, BCE continues to report steady results….and a dividend increase. All this should support its current credit rating.
But more on BCE’s dividend sustainability:
There’s lots of media concern lately about its dividend sustainability. But they are using BCE’s own “free cash flow” figure—which includes capital spending (not just maintenance capital spending)—which in many ways is discretionary—in fact, it’s cutting back on the buildout of its fibre, 5G and 5G+ network infrastructure this year.
While not guaranteed…the payout seems safe.
In fact, the company has just raised its dividend (although the 3.1% increase is below the 5% or so raises in previous years.
The company is cutting back on capital spending and making big job cuts—so that adds to its dividend sustainability.
$$$$$$$$$$$$$
Notably, rival Telus has suffered a somewhat similar drop. BCE is down about 34% from its 2023 high and down 42% from its all-time high in 2022. Telus is down about 28% from its 2023 high and down 39% for its all-time high in 2022.
This indicates that there is likely more to BCE’s (and Telus’s) drop than dividend coverage.
Traditionally, Utilities and so on are said to suffer when interest rates rise—for example, they have a lot of debt, and higher rates make it more expensive to raise money and refinance existing debt.
As well, their shares, which typically offer high yields, compete with fixed-income instruments for investor interest.
All in all, while the stock is down, we think BCE will recover and move higher.