BCE Inc. (BCE.TO)

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).

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).

He'd stick with it at this point. Have now see the worst news for the telecom sector, as Freedom Mobile and immigration changes were headwinds. Selling MLSE will help. Still getting paid a nice yield of 5.2% to wait.

See his Top Picks.

Underwater the past 3 years. EPS fell, free cashflow has also declined. Analysts have an average upside price target of 55% up from here, but she doesn't see that much. More like 4% from here. Still restructuring. She owns Telus instead.

It is turning around with the chart turning positive. There's a big catch-up trade to be had. The next resistance level is $42. It's the laggard among the big three 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.

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.

She has no exposure to telcos, too competitive. Cut dividend, which will help preserve cashflow and balance sheet. But probably means dividend won't be raised anytime soon. Still questions about fibre strategy in US, which is also a very competitive market. Move on.

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.

Now is probably the time to buy if you want to take a position. At $30 it is reasonably cheap. He likes the dividend cut which gives it financial flexibility and the opportunity to pay down debt. The dividend is still quite high at 6% and is stable. Market fears are somewhat overblown. The three year view should be better. He owns Rogers.

Dividend cut was the right thing to do and stabilized the stock. Business model facing lots of challenges right now. Lots of competition on satellites and mobile. Revenues aren't growing. Looking for alternatives to break into broadband in the US, doesn't seem a smart decision. Wants to see asset sales and debt paid down. Hard to see a catalyst. He owns no telcos now.

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%.

Hasn't liked some of the decisions. Hasn't sold or added. Historically once you get a material dividend cut, that ekes out the last bit of selling. Probably close to a bottom right now. Still, you need a catalyst to take it over the top and start the recovery.

Nibble or accumulate. Doesn't see a catalyst for this to take off to the upside. There was a bump after the cut, but then it dropped right back down. Tells you that a catalyst is lacking. Be cautious.

He was very disappointed when they bought Ziply. They should have bought back shares. Makes sense to slash their dividend. They should focus on what they do well, including media assets. Expectations among investors are now very low. Things could change, but we're now at maximum pessimism.

When making investment decisions, discard the idea of what your cost base is. It doesn't matter, it's water under the bridge. It's behaviourally and psychologically difficult to rip off the Band-Aid and admit that the initial decision was an error and to realize the loss. But remember that the loss is real already. What matters is where it's going in the future, regardless of what your cost is.

Stock sold off heavily in the last 2-3 years because it was anticipating the dividend cut, which finally came. Dividend is now sustainable. Total return expectations are likely confined to more or less what the dividend yield is. Doesn't expect shares to bounce back sharply in the short term. Look at Telus instead.