The BCE dividend is presently at almost 9%.
Would it be a smart move to buy it just for the dividend? The thing is I don’t want to lose capital that offsets the dividend either.
Knowing no one can predict future company actions, do you think they will cut their dividend?
Do you see the stock price drop if they don’t raise their dividend in February?
Where do you see BCE stock price in 5 to 10 years? Does it at least stay flat?
Thanks
While the dividend yield is certainly attractive, we do not think investors should buy shares just based on the yield alone. In fact, a number of other factors such as future growth prospects, valuations, balance sheet strength, etc. should be taken into account.
BCE’s net debt/EBITDA is around 3.9x, which is high compared to its historical averages of 3.2x.
Although CAPEX has declined recently, and its trailing twelve-month cash flow of $7.6B can still cover its dividends of $3.7B. The dividend is not at risk yet (but the situation may change in the future). Also, BCE’s shareholder base values the dividends highly. The share price would get likely drawdown significantly if there is a dividend cut.
We think, given where it is trading, the risk/reward is quite favourable. If the company can manage to grow its topline, pay down debt while maintaining or decreasing the capital spending, we think BCE could see a re-rate from here.