Q: BCE has dropped in value significantly. Heavy debt load is putting pressure on sustainability of dividend growth and people are talking about a dividend cut.
Can you give us your view of what the optimal capital structure would be for BCE relative to the current leverage? And whether you see the decline in share price as a buying opportunity. Thank you.
Can you give us your view of what the optimal capital structure would be for BCE relative to the current leverage? And whether you see the decline in share price as a buying opportunity. Thank you.
5i Research Answer:
Our recent blog may help. Management knows their optimal capital structure better than we would, and frankly until recent problems few investors ever questioned their allocation. But cash flow growth has not kept pace with revenue or debt growth. Debt/capital was 63% last year, and we would prefer closer to 50%. We think the decline presents an 'accumulation' opportunity for income investors.