Better Buy: BCE Stock vs. Telus Shares?

BCE (TSX:BCE) and Telus (TSX:T) are telecom dividend leaders, but passive-income investors should note the risks.

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The telecom stocks have been battered over the past few years thanks to higher interest rates. The bad news is that rates could continue to rise as the Bank of Canada (BoC) looks to put the finishing touches on its fight against elevated inflation. The latest inflation numbers, which were hotter on a month-over-month basis, bring forth the need for continued rate hikes.

Telecom stocks deserved to take a hit. But the million-dollar question is whether the hit is overdone. Personally, I think telecom stocks are more or less fairly valued here, given where rates are currently at and the potential for more rate hikes to keep flowing in over the coming months. That said, if you’re a passive-income investor who’s enticed by the now-swollen yields to be had in the telecom scene, I’d not be afraid to punch my ticket right here.

Telus vs. BCE: Great dividend stocks for Canadian investors

Indeed, the dividends of the telecoms are incredibly well-covered and likely to grow steadily over time. Though rising rates are a notable headwind, one has to think that rate woes are more than priced into share prices right now. The only question is whether a recession could bring forth another wave of weakness. Given the likelihood of a mild recession coming to Canada, I think dollar-cost averaging is the way to go if you’re keen on picking up a telecom stock from the market wreckage.

BCE (TSX:BCE) and Telus (TSX:T) are the dividend heavyweights that look most enticing, with yields of 7.1% and 6.36%, respectively, at writing. But which telecom stock would I rather buy in this climate? Let’s find out!

BCE

BCE is a good, old, reliable dividend payer that’s likely in the portfolios of many retired income investors. Of course, BCE stock is no stranger to massive downside moves. However, the past year and a half of downside has been quite violent. The stock has lost more than a quarter of its value from peak to trough. And with negative momentum continuing to drag down the shares, questions linger as to when the telecom titan will bottom.

The stock could retest 2020 lows in a matter of months. But as shares sag, the dividend yield will keep surging higher. At 7.1%, I think the dividend is ripe for picking. And if it moves closer to 7.5-8%? I’d look to buy even more shares. Are there challenges in Canada’s telecom sector? Definitely. Higher rates and media segment woes have really made things tough for BCE. However, the dividend is safe, as the firm looks to get expenses controlled in this harsh environment.

Though the yield is tempting, I like Telus stock better.

Telus

Telus stock’s chart looks quite similar to BCE’s. The stock has shed a third of its value and is also hovering close to pandemic-era prices. The dividend may be smaller than BCE’s, but the growth profile looks more attractive. Further, the lack of a media segment, I believe, warrants a premium.

At writing, Telus is a falling knife, but one that could bottom at any moment. Though I wouldn’t buy a full position at once, I would nibble into quarter positions gradually over the next year. Tough times in the telecom scene won’t last forever. As the recession passes and Canadians become more willing to consume more mobile data, Telus and the telecoms will be in a spot to prosper again.

If you’re patient, buy shares and collect the dividend payments while the firm does its best to adapt.

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 Joey Frenette 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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