Telus vs. BCE: Which Telecom Titan Should You Invest In?

Telus (TSX:T) and BCE (TSX:BCE) are both excellent dividend stocks, but one is better.

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Canada’s large telecom giants are attractive targets for dividend-seeking investors. But if you had to pick one of the two biggest corporations in this sector, which one stands out with a clear advantage? Here’s a closer look at how Telus (TSX:T) and BCE (TSX:BCE) stack up against each other. 

BCE

Bell Canada, or BCE, is the largest wireless and internet provider in the country. That dominant position gives it immense pricing power as well as enough resources to keep reinvesting in the business to sustain its lead. 

For instance, the company is already well on its way to expanding its 5G+ service across the country and is also adding another 650,000 premises to its local fibre access footprint. This year, the company’s 5G+ services are already active across 85% of its network. These capital investments give the company an edge in the market. 

Meanwhile, BCE also offers an attractive dividend yield of 6.02%. That’s noticeably higher than Telus’s 5.2% dividend yield. 

Based purely on market dominance and dividend yield, BCE is the clear winner. 

Telus

Telus holds significant market share but isn’t in the same position as its larger rivals. For one, the company has a lower payout ratio than its larger rivals but still offers a lower yield. Over the past 12 months, the company paid out over 102% of operating cash flow in dividends, while BCE only paid 127% of cash flows. 

Despite that, Telus offers a dividend yield of just 5.2%, while BCE offers 6.02%. 

The stock is also relatively overvalued. Telus stock trades at 26 times earnings per share compared to BCE’s 22. However, Telus’s earnings are more diversified, since it has a stake in a virtual healthcare service (Telus Health) and the FinTech venture capital sector (Telus Ventures). 

Overall, Telus isn’t an attractive dividend stock, but it could be a better growth stock if its diversified earnings grow faster than rivals in the years ahead. 

Similarities

Despite their differences, Telus and BCE offer some of the same qualities that investors should keep an eye on. They’re both Dividend Aristocrats, with track records of consistent dividend growth. They’re also reliable industry leaders with significant market share, which makes their revenues and valuations more stable over time. 

Any investor looking for safe and reliable cash flows can bet on any one of the top five largest wireless service providers in Canada. 

Bottom line

Betting on Canada’s wireless internet sector is usually a good idea. The largest telecommunications firms have pricing power, market dominance and stable cash flows. However, if you’re looking for a high yield, better performance, and better valuation I believe BCE is a better option for most investors. Keep it on your blue-chip, dividend yield watch list for 2023. 

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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