Q: What are your thoughts on the c rating downgrade ? Dividends are currently over 100% of FCF. How do they maintain the div under this situation
5i Research Answer:
BCE’s downgrade could lead to a few negative things including
_Higher cost of borrowing
_BCE’s shares may become less attractive to conservative investors
_Stricter covenants and terms in the future
BCE’s trailing twelve-month cash flow is $7.7B, compared to the trailing twelve-month dividend of $3.7B. So far the dividend can still be covered through internal cash flow (things could change in the future as the dividend is discretionary at the end of the day), however, with the downgrade in credit rating, it would be harder for BCE to borrow more in the future. This also means it could be harder for BCE to raise its dividend unless the company can manage to grow earnings through organic growth and operational efficiency.