BCE Inc. (BCE.TO)

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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Recent sale of MLSE will generate significant cash windfall. Comes at a good time, with concerns about debt load. Debt rating was cut. Traditionally owned for the dividend, so a cut would be a last resort. That said, you still need strong cashflows to pay that dividend while servicing your debt.

Not super-high on his list of Canadian stocks to own, but he does understand income needs. Rate cuts should propel stock forward. Not a terrible stock, but he'd look elsewhere.

Be critical of the positions you're considering. This one is making a new RSI low today compared to the rest of the market. Trading below long-term moving averages. Selling the family jewels of MLSE to support the rest of the business and the dividend. You'll get your dividend, but total return is the game. Better places to invest. 

Pretty positive on sale of the sports assets, as the real value came from de-leveraging. Payout ratio is a little more bearable today, though still stretched. He'd buy today, but remember that these are tough businesses over the medium- to long-term. Doesn't mean you have a long-term, high-revenue-growth business.

Telcos have lagged other yield sectors, and this creates an opportunity. He's buying all the telcos. This is his #2 choice in the space. Cashflow is stable, but not growing at a very high rate, and the dividend must take this into account. If your payout ratio is already on the high end, and you're raising the dividend every time, you're actually borrowing debt to pay the dividend. He likes companies that are on the right side of the payout ratio, and BCE is moving in the right dircetion.

CNQ gets the nod for growth.

Sold BCE a few months ago. Slowed down its dividend growth. Core businesses are facing sluggish secular growth. Balanced sheet is more leveraged, debt downgraded. Applauds selling sports asset. Not enough to get his interest.

Doesn't own, mainly because of debt levels. Has tended to increase dividend over time, all the time, combined with high levels of capital spending. Rogers deal announced today involves selling a prize asset, but only a 10% reduction in debt. Dividend safer today than yesterday.

He wouldn't buy it but also wouldn't sell it. It pays an 8.6% dividend and he sees no dividend issues going forward. They need to have continued asset sales for the next few quarters and effective pricing.

Dividend's OK, and lower interest rates should give the stock a big bounce. Problem is that everyone who wants a cellphone already has one. No market growth. How can they improve their business? Pricing is high, government pressure to bring it down. Have to keep reinvesting capital to keep up with competitors, who all have the same problem. Yield is 8.5%.

The only interesting play in the space is QBR.B.

It is lowering its capital expenditures by about $1 billion mostly this year, and lowering operating expenditures. This will improve free cash flow. This is looking favorable for lowering the payout ratio and sustaining the dividend. It is sensitive to interest rates and has probably hit bottom. In general the 5G and other expenditures in the telecoms are being wound down so free cash flow is improving.