BCE Inc. (BCE.TO)

Gave up a golden sports asset to buy a cable asset in the Pacific Northwest, instead of paying down debt. A head-scratcher. Competitive industry; harder to grow revenue, especially when costs are escalating. He owns Telus.

One of his favourite investing lessons: In 2008, the Teachers Pension Plan was taking this out at $41 + 1 share, above today's level and pre-5G. Didn't sell then, because his mentor said that if the assets are good, then the management is temporary. The market hates what management has done, but they now have built a 5G network and the investments of the last 10 years have made this company worth more than 10 years ago. He's happy to buy this under $40. There could be a change of government next year. It's undervalued now. True, he doesn't like the recent US acquisition, but they can apply lessons learned in building 5G here to there, the U.S. but the selling has been overdone.

At the present price its dividend yield is 10% and looks secure.The recent acquisition disappointed investors, including him, who were hoping for debt pay-down. He is hoping that the Board knows what they are doing.

In general, telcos are a tough area right now; earnings growth is weak. Investors are in wait-and-see mode. Yield is now 10.4%, lots of questions whether it can stay there. Management did say dividend won't increase, but did not say it would decrease and this is a positive sign.

When a stock's having a hard time, it can get worse. Looked cheap a month ago, but is now even cheaper. When you buy use a stop loss, so that a little mistake doesn't become a big one; this will save your bacon. Steer clear.

The sell-off is overdone. They already pay 8%, so do they need to grow that dividend? Pausing the growth is prudent. Also, divesting from major league sports and investing in fibre makes sense (most of that sports money will pay for the fibre company). No, BCE is not headed for disaster.

He owns it for the dividend, and so do most Canadians. Not for the growth. He saw the Ziply acquisition headline this morning and just scratched his head. Market's confused too. If pressure remains, will be forced to cut dividend.

He needs to do a deeper dive on this story.

We have some comments posted on the deal today. For now, with a 10% decline in the stock, we would hold. But the company may have lost credibility here, and with the dividend set to be flat for awhile we think it may struggle a while longer. But we would prefer not to sell into the 'shock' of the news. 
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Price bottom is probably in so he's getting interested; operating and financials fundamentals are probably closer to a bottom than a top. Divesting MLSE was a good move. Yield is very high, close to 9%, but growth aspirations had to ratchet down. Primary driver of cell phone demand is population, and federal government has lowered immigration numbers.

Hard to find a catalyst for growth. Massive debt, dividend not covered. Business fundamentals aren't great. So much regulatory pressure, plus competition. Sold his telcos, mainly because price of cell phone service for Canadians is a big risk. MLSE was a prize asset, and they sold it, not a good look. Stay away for now.

He sees about $3 EPS, which at $46 per share, comes to a bit over 15x trailing PE. Looking forward, earnings growth isn't going to be very good. Is it worth the value it's trading at today? For the dividend, yes, as long as they can maintain it. Not a growth company, so should trade at a lower multiple than the market. You could make the argument that it should trade where the banks do, around 12-13x. They'd be equivalents, so it's pretty much around fair value at this point.

But the discussion point right now is that if they're borrowing money to pay the dividend, then at some point, a dividend cut is likely. For a long-term dividend payer in Canada, that's the challenge right now.

Remains in a downtrend, and we're seeing it in all telcos. Function of debt load and higher interest rates. Will especially come under pressure if rates go higher next year. Typically, these names clear off some debt and come through the tough period stronger and better than ever. But right now, it's a challenging time. Likely more downside.

Technically tough times, trending lower with a falling 200-day MA. Stock price is also below 200-day MA. Those technical points keep him away. Interest rates coming down have helped, so it's off its lows. Yield is 8.8%, have to see if it remains secure.

Better profile than, say, Telus. More arrows in its quiver. Lots of content, robust dividend.

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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