Buy BCE Inc. (TSX:BCE) Now, Get Rich Later

Critics of BCE Inc. (TSX:BCE)(NYSE:BCE) often point to several factors that make the company a risky long-term holding. Here’s what investors may not realize and why the company is a great investment.

| More on:
The Motley Fool

BCE (TSX:BCE)(NYSE:BCE) remains one of the most often-mentioned investments to include in nearly any portfolio, and for good reason. The stock has paid a handsome dividend every year for well over a century and has maintained an impressive record of raising that dividend on an annual or better basis by at least 5% for years. Additionally, BCE commands one of the largest wireless networks in the country and takes a lead among the Big Three in Canada, which account for over 90% of the market.

Unfortunately, as we all learned most recently through the slumps we saw in 2018, prior performance is not indicative of future gains, and when it comes to BCE, there are several headwinds facing the company that are often cited by critics.

One of the biggest claims by those critics is that telecoms lack any form of real, promising long-term growth. This argument is based on the notion that BCE, like other telecoms, puts most of its earnings towards its handsome dividend, and as a result, it lacks that extra financial push to make the big deals and invest in growth. Adding to this is the belief that stringent regulations imposed on the telecom sector slow innovation and hamper growth.

Both of these has been proven false on more than one occasion. The acquisitions of both MTS and AlarmForce, both of which were completed in the past two years, expanded BCE’s reach into new markets as well as new product offerings, thus addressing the first concern; and the fact that Canada has some of the highest wireless rates in the Western world and the emergence of a fourth player to the mobile market through Freedom Mobile address the latter.

There’s still plenty to love about BCE

With the concerns noted, we can also take a look at what makes BCE a good investment.

First and foremost, let’s revisit that dividend. The current 5.29% yield on offer is not only attractive but incredibly stable. Payouts typically fall under 75% of free cash flow, which provides some room for growth, addressing one of the main concerns of critics. Furthermore, the steady stream of dividend hikes has resulted in that payout more than doubling in the past decade, and that’s a trend that is unlikely to end anytime soon.

Second, let’s look at a more macro view of the market and BCE’s role. After a disastrous end to 2018, the market appears to be roaring back to life, with many of the holiday season losses nearly erased. While that may sound like a relief to some investors, recent gains are in no way addressing the countless areas of uncertainty in the economy, which could bring everything to a screeching halt again. Things that could play a part include the upcoming Brexit date, another U.S. government shutdown, interest rate hikes, or the real estate market cooling further. I’m not even going to mention the impact of further supply issues with crude or the price of oil itself.

With that level of uncertainty in the market, finding a selection of core investments that are defensive in nature is key, and BCE fits into that position nicely. The company is well diversified in several segments, and some of those segments, such as wireless, are increasingly becoming core to our way of life.

Should you buy?

I can appreciate the risk that critics often refer to but also the opportunity posed by including BCE in any type of long-term portfolio. In my opinion, the appetizing yield with its long history of dividend hikes is far too attractive to pass on, especially when considering the growing need for connectivity in our lives that BCE provides.

While I wouldn’t back up the truck completely on the stock, taking a position in BCE could prove to be very profitable over the long run for income-seeking investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned.

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »