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Stockchase Insights
BCE Inc.
BCE-T
BUY ON WEAKNESS
Oct 09, 2024
Stock price when the opinion was issued
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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%.
Price competition, so pricing power has disappeared. Profitability flat. Building out 5G network increased debt. Immigration has slowed. All that had a huge impact on FCF and ability to pay dividend. Latest acquisition doesn't make a whole lot of sense. Wouldn't touch. He owns Telus and CCA.
For a class action lawsuit, you have to get investors together and prove that there was intention to mislead.
Yield is now 5.8%, so still a decent yield. Won't be any dividend growth. Now more transparency on payout ratio, and partnership with PSP on Ziply eases financial burden. Could be a valuation gap up. A buy today is not for a short-term pop in the stock, it would have to be a long-term buy and hold.
All telcos are facing slowing immigration, competitive pressures, regulatory pressure. Over the very long term will be OK, as they supply critical infrastructure. If recession, nice place to be for stability and defensiveness.
While the dividend yield is certainly attractive, we do not think investors should buy shares just based on the yield alone. In fact, a number of other factors such as future growth prospects, valuations, balance sheet strength, etc. should be taken into account.
BCE’s net debt/EBITDA is around 3.9x, which is high compared to its historical averages of 3.2x.
Although CAPEX has declined recently, and its trailing twelve-month cash flow of $7.6B can still cover its dividends of $3.7B. The dividend is not at risk yet (but the situation may change in the future). Also, BCE’s shareholder base values the dividends highly. The share price would get likely drawdown significantly if there is a dividend cut.
We think, given where it is trading, the risk/reward is quite favourable. If the company can manage to grow its topline, pay down debt while maintaining or decreasing the capital spending, we think BCE could see a re-rate from here.
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