Q: to start a new position in telcom today.
assuming same dividend growth average of the last five years for each company and asssuming it is maintained moving forward,
how long would it take for the dividend of telus to catch up to BCE when they are starting as far apart as they are currently ?
Which of the two do you prefer for a long term hold and why ?
assuming same dividend growth average of the last five years for each company and asssuming it is maintained moving forward,
how long would it take for the dividend of telus to catch up to BCE when they are starting as far apart as they are currently ?
Which of the two do you prefer for a long term hold and why ?
5i Research Answer:
The telecom industry is currently in a tough position in a highly competitive market that requires heavy capital investment to maintain market share with limited pricing power. BCE’s current dividend yield is 8.5%, and growth in dividends in the last five years was 5% on average. T’s current yield is 6.8%, but growth in the last five years was around 7%. It would take quite some time for T’s dividend yield to grow on par with BCE, approximately 10 years if valuations and growth in dividends remain unchanged. However, dividends are discretionary and could be cut or grown at a different rate going forward. Today, we would prefer BCE due to its more-diversified business mix. It has already also started its cost-cutting efforts.