On Feb 1st you included BCE as one of the companies with the safest dividends on the TSX.
On Feb 2nd the answer to a question on BCE was "and its free cash flow has been declining over the past few years. Over the past 12 months, its free cash flow is not sufficient to cover its dividends, and the company has issued debt to service these payments. Its debt-to-equity is climbing, and its net debt/EBITDA is high at 3.6X."
The 2 answers seem to be a bit of a contradiction. I understand you are referencing free cash flow (after capital expenditures) are not sufficient.
Would it have been better said that they are issuing debt to finance capital expenditures and infrastructure than to pay dividends?
Our response on Feb 2 is meant to indicate that we still believe their dividend will be paid regardless, and in fact will grow by at least 3%, if not 5%. Given BCE's oligopoly-type position in the market, its long-standing ability to service dividends and debt, and decent free cash flow yield, we are confident that management will be able to take the necessary steps towards either reducing expenses or increasing its top line to address its falling free cash flows. This would put the company back into a position of comfortably increasing dividends and reducing its debt load. As it stands today, it may not seek to increase its dividend by the historical 5%, however, we believe given its size and importance in the Canadian economy that it has the levers to still accomplish this.
In theory, debt is issued to finance CAPEX, but it does have both CAPEX and dividends to service on a yearly basis, and as it stands its cash flows are not enough to service both. Although, this does not mean that we don't believe it can reclaim a position where it can service both again, and in the short-term if cash flows are insufficient, we believe it has levers it can pull.