Q: Hello. I'm a bit concerned about the payout ratios of BCE and Telus. Telus has an even higher payout ratio than BCE, and I'm wondering what their prospects look like for the next few years. Will they be able to keep up these high dividends? Is there a chance they might cut their dividends? My question is, should we reduce our exposure to these telecom stocks and reinvest in other areas? Your insight would be really helpful. Thank you!
5i Research Answer:
No dividend is guaranteed, and there is a lot of angst over these two, but we do not think either dividend is at any immediate risk. BCE has already implemented cost-cutting measures to improve performance, and both have assets that could be sold. Cutting a dividend would of course hurt share prices, and this would raise the cost of capital, and we think both will do everything in their power to avoid this. BCE has indicated it will still grow its dividend, but at a slow rate than historically. Many investors look at earnings when considering payout ratios, but we think cash flow is a better metric to use. Using cash flow, in the last 12 months, BCE payout ratio was 47%, T's was 30%.