Long-Term Investors: Is BCE Stock a Buy-and-Hold Right Now?

The looming fears of a recession, interest rate hikes, and inflation have not spared any publicly traded company on the TSX, creating a bear market environment. Even industry giants like BCE Inc. (TSX:BCE) have seen their valuations decline. As of this writing, Canada’s largest telecom stock trades for $60.70 per share, down by 18.07% from its 52-week high.

While stocks from the telecom and utilities sectors tend to trade for lower valuations during high-interest-rate environments, BCE stock has seen a more pronounced downturn due to inflation impacting its earnings. Let’s take a look at some important facts about BCE stock right now to determine whether it can be worth considering for your self-directed investment portfolio at current levels.

The telecom giant’s capital expense and fiscal growth

BCE is the industry-leading telecom company in Canada. Boasting the most extensive network among its peers, it continues to improve its infrastructure through capital investments. The company has increased its capital expenditure plan. The Telco giant is slated to invest around $14 billion in network improvements to retain its position as the leading telecom in the country. It expects to invest that amount between 2022 and 2024.

2022 saw BCE report $24 billion in revenue, reflecting a 3% year-over-year increase in its total revenue. In the same period, its net income increased by 1% to hit the $2.9 billion mark. Since the company has increased its capital expenditure in the last two years, its free cash flow has declined.

However, the decrease in free cash flow right now can result in significant growth as its investments bear fruit in the coming years.

Its investments are getting results

While the capital expenditure plan might have decreased its free cash flow, its investments to improve its infrastructure are already getting results. The last few years have seen stellar growth in BCE’s post-paid wireless subscriber customers. In 2022, it also reported growth in its average revenue per user by 3% year over year. Its average revenue per user was higher than its closest industry peers.

BCE’s dividend payouts

At its current share price, BCE stock pays its shareholders a juicy 6.38% dividend yield. The yield is unusually high for the stock, as the decline in its valuation has inflated its dividend yield. The company increased its shareholder dividends by 5.3% in 2023.

While the dividend yield does indeed seem high, its earnings visibility, stable business model, and overall healthy balance sheet should allow management to grow its payouts comfortably.

One concerning factor to note is that its payout ratio is currently over 120%. Its payout ratio has been higher than 100% for the last three years, indicating that it pays out more than it earns. Normally, this should worry investors. However, BCE stock is a strong enough business to improve its earnings and bring down its payout ratio to 70%, according to its guided figure.

Foolish takeaway

BCE stock is an appealing bet for low-risk investors to consider. While its capital expenditure plans combined with inflationary conditions might impact its performance on the stock market in the short term, it can be safe to buy and hold for the long term.

As its balance sheet improves and subscriber base expands, it is well-positioned to regain traction on the stock market, making it an attractive bet to consider.