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BCE Inc.
BCE-T
DON'T BUY
Jun 28, 2024
Stock price when the opinion was issued
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Troubled. The business is becoming more and more competitive. Can't cover the dividend. Company claims that when massive fibre build is complete, dividend will be covered; most investors don't believe that. If dividend were cut, stock would go up. Yield is 12%.
He's a more aggressive investor than the rest of his team. He'd say it's a speculative buy now; BCE is not going away.
Relatively high yield. Defensive sector. Elevated payout ratio, rising debt, and weak growth outlook present too many risks. Hasn't done that poorly this year. 12-month price target of $34.75. If you're concerned, you could sell 1/4 or 1/3 as a sacrificial lamb.
Challenged sector for several years, mainly since interest rates started rising. Bond proxies that are pretty compelling when there's financial repression as we had from 2008-2022. You have to pick your spots. Likes Telus, but not the rest.
Pretty much a certainty that BCE will cut its dividend; it's more a question of when and by how much. Yield is now up to 13%; a screaming red flag from the market telling you that dividend is not sustainable.
Most people want to diversify. Temptation is there -- fat dividend, company will be around for years and years. He expects a dividend cut of 50-55%, DRIP may be stopped, more asset sales. Balance sheet and population growth have not been in its favour. Buy only a little bit down here ~$29.
His view is that if BCE starts aggressive measures to right the ship, the stock will actually rally.
7% in one stock is way too overweight. Expects to see a haircut on the dividend. Management hasn't been making the best decisions over the last year or two. He's been in this name since mid-$40s, not happy, but hasn't exited.
Instead, use ZWU.
The expectation is for a dividend cut of nearly 50% starting this month. We'll see if that happens. Technically, shares are having a rough go below both the 200-day and 200-week MAs. Earnings growth is sub-standard, even negative.
So, no, he wouldn't add at this stage. At some point, things could turn around a little bit. Yield is 13.3% (would still be attractive even with a 50% cut). If you own, you can hold.
Sold MLSE sports, bought a cable provider in the US. As late as Christmas, management was adamant that dividend would not be cut. The business is very difficult as a legacy communications company. Have to rely on mobile subscriptions. Competition's not getting easier. Stock's moved up, perhaps buyers are excited about it again. Yield is 6%.
Using BCE as an example, its growth has decelerated, volume growth consumes a large amount of capital, while pricing power is limited in the industry. But, Canada remains an oligopoly with little real competition, and largely, we do not believe its dividend is at any real risk in the medium term. One of the issues has been a combination of slowing growth, mixed with lower free cash flows relative to its dividend payments, resulting in increased borrowing at currently high rates. While a 5% interest rate may not seem objectively high, when considering the levels these companies were borrowing before, the rate of change is extremely high, and this is what impacts a company's bottom line.
We would like to see BCE and other telcos tighten up on spending and begin to improve their margins to fully secure current dividend payments, but debt levels have been rising and this has led to some concerns by investors. We do not like the negative momentum of the name, but we believe a lot of worries have been priced into the name and we feel it can be slowly accumulated by income investors with a long-term timeframe.
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