Stock price when the opinion was issued
Whole telecom space has been challenged, partly because of increased competition. No outlets to grow outside Canada. Profitability will be flat for some time. People own these names for the income. Rogers' purchase of Shaw gives it an edge on cost-cutting. Telus is the best operator. Rogers has the lowest dividend yield of the group.
Steer clear of the space. Even with an income stock you do want some growth, as it helps offset valuation risk elsewhere in the business.
This pick was before the sale of MLSE to Rogers and before the acquisition of Ziply. The yield was 10%, over the worst of fibre capex, and lower interest rates would help. She figured it had so many assets, that any of them could be sold to fix the balance sheet and alleviate investor concerns.
She still owns it, buying more around $30. Eventually, asset sales can help. In a recession, defensive plays are a positive trend for telcos.
He quoted from a technical analyst: "Nothing good happens below the 200 day moving average". Its dividend is 5.7% and the payout ratio is 45%. Earnings are expected to be down this year and the next. In general telcos are in a very competitive business and have very high debt to equity. They have some unused or little used assets. There are better risk adjusted returns elsewhere.
He fully understands the plan, which is to sell covered calls and then get called away as part of a tax-loss strategy. He's not an accountant, so can't give tax advice.
Some people sell a stock, and then sell an in-the-money put or a cash-covered put to maintain some exposure to that stock. Just make sure you're not re-acquiring the stock within 30 days (or the tax loss won't count).
It's time to step back into telcos. Dividends are sustainable. He owns all 3 Canadian telcos. Share prices have bottomed, and he expects margin improvement. Costs have been slashed. Is partially optimistic, because shares have been so beaten down, and yet the industry isn't going anywhere. There will be some growth going forward. Is bullish on telcos. BCE's strategy in the US (buying a US company) will generate reasonable value. Telus is the faster grower and has made good moves outside telecoms to create value. Rogers is more of a question mark, including their sports holding, but is worth a ton of money (the value of sports teams is huge).
The plan is OK. Lots of moving parts. The turnaround from overpaying the dividend is there. Looking forward, dividend's probably safe; can probably start growing it again 3-4 years from now when the fibre play starts to pay off. Fibre is a big move to the future; if it works, it'll be spectacular.
CRTC decision today to allow competitors to use BCE's fibre footprint will reduce profits, as the access price will be regulated. Hopefully the regulated price will at least cover the costs. Also takes away the oligopoly aspect.
Become differentiated when you drill into the metrics. Both suffering from credit downgrades. Took on a lot of debt for 5G buildout, but weren't able to increase pricing. Number of immigrants has slowed. Lots of price competition, just as elsewhere in the world.
In last quarter, Telus increased dividend. Less risky than BCE right now. Debt/equity ~150%, so not as much onus on debt repayment as for BCE. Has potential of other operations like TIXT and Telus Health, so it's doing other things outside of just telecom; appears to be promising growth, but we'll see.
In last quarter, BCE cut dividend. Debt/equity is at 200%.