BCE (TSX: BCE) disappointed many Canadian passive-income investors when it cut its dividend by over half last year. This move was necessary to support its turnaround strategy, though it was painful for investors expecting consistent payouts. The dividend yield had become unsustainably high, and a reduction was expected given BCE’s stock performance and the unsustainable nature of its dividend.
Fast forward to nearly a year later, BCE shares have stabilized, with a 3% drop in the past year and a 1% gain year-to-date. While telecoms remain challenging, BCE’s dividend yield of 5.41% is now well-covered and could grow if the company’s recovery efforts succeed. Canadian bank yields are low, making BCE’s yield more attractive.
BCE’s shares trade at a deep-value multiple of 4.8 times trailing P/E, despite industry headwinds. The stock has already lost 55% of its value, and while dividend yields are lower than before, the potential for future growth is promising. The company has options like AI cost savings, U.S. fiber business expansion, and potential moves into AI data centers to boost free cash flow and justify dividend hikes again.
However, debt repayments must come first, and the recovery will likely be a multi-year process. BCE’s leadership and proven strategy make it a compelling buy for long-term investors seeking a safe dividend and growth potential, despite the challenges posed by satellite connectivity and broadband competition.
Source: The Motley Fool Canada
