• The share price is lower than it was 10 years ago.
• In a response to Nick on April 3 you mentioned “the dividend in FY2023 was $3.7B, which is covered by a cash flow of $7.9B,” (which aligns with the Operating Cash flow). Looking at the FY2023 report “https://bce.ca/investors/AR-2023/2023-bce-annual-financial-report.pdf” (page 20) they mention that their dividend payout policy is to fall in the range of 65-75% of free cash flow and that their payout in 2022 was 108% and in 2023 111%. I would think that this may be a better gauge as their capital requirements appear to be regularly high, and a number exceeding 100% may not be sustainable for long.
• Their level of debt appears to be very high.
• Their revenues have had minimal increase year over year and their net earnings declined quite dramatically.
• I understand they are trying to turn things around but are heavy regulated.
What is your opinion considering the above, your understanding of the situation and the current share price which appears to be historically low (offering an incredible dividend).
Would you be a buyer of the stock? Thank You!
BCE’s valuation multiple has been at its lowest since 2013, BCE's Forward P/E is around 14.6x, a similar level to FY2023, but down meaningfully from the highs of 20x, as the market re-evaluates companies with high leverage level and capital intensity in high-interest rates environment. In addition, growth has decelerated, as volume growth consumes a large amount of capital, while pricing power is quite limited in the industry and competition is intensifying. Given the capital intensity of the business, free cash flow could be a better metric, but FCF is quite lumpy given capital investment and at the end of the day a large portion of capital expenditure is still discretionary, to some degree, and could be curtailed if needed. We generally reference operating cash flow payout because it is more comparable to other companies, since, some will spend on capex and some will not. BCE’s dividend was consistently around 100% of free cash flow (or more), historically, as BCE leveraged up its balance sheet to pay dividends. We don’t think this is too concerning if BCE’s EBITDA continues to grow, as long as net debt/EBITDA is still within its target level. Right now it is around 3.6x, quite high relative to historical averages, indicating the prospect for significant dividend increase may be limited). Overall, BCE’s prospects certainly do not look great, but the company is in the process of turning things around, and the valuation reflects a lot of worry already. The dividend could still be maintained for years if the company chose to focus on it. We don’t think this business will go anywhere anytime soon but BCE needs some time for things to normalize. We would not be a seller at this price. We could be 'slowly accumulating' buyers into any more weakness. Sometimes, when investors do not expect anything, stocks can turn on any good news.