With a 7% Dividend Yield, Is it Time to Buy BCE Stock? 

BCE stock is down 14% in a year, even after it grew dividend by 6% in 2023. Is the stock a buy at its current price?

| More on:
clock time

Image source: Getty Images

Are you a risk-averse investor comfortable earning lower returns, as long as your invested amount is safe? Is your investment portfolio skewed towards fixed-income instruments like bonds and bank deposits? Then this article is for you. The interest you earn on bonds and deposits barely makes up for the inflation. While it does compound your returns in the long term, fixed-income securities alone cannot help you sustain your rising expenses. At such times, it is the stock market that gives you growth. And even here, you can earn fixed income from dividends that grow along with the market. 

Dividend investing through BCE stock 

When you look at a dividend-growth stock, don’t look for capital appreciation, as most dividend stocks invest in infrastructure that generates stable income. And they grow their dividends by increasing fees or expanding infrastructure. However, not all companies with income-generating infrastructure give good returns. 

Many energy dividend stocks saw a slowdown in their dividend growth, as the transition to natural gas and renewable energy accelerated. This shifted the focus to stocks that have scope to grow their dividend. 

The digital revolution brought with it the necessity for communication. And this need will only grow as broadband moves beyond communication to performing tasks through artificial intelligence. 

One communication stock efficiently tapping the digital revolution is BCE (TSX:BCE). It has managed to make its operations efficient by achieving scale. On one side, it has strong operating cash flows from wireless subscriptions. And on the other side, high capital expenditure leaves lower free cash flow for dividends. 

However, the capex will ease as BCE nears the end of its accelerated capital spending on the 5G rollout. This could see its free cash flow improve over the coming years, as it did in the third quarter when it surged 17.4%. Moreover, the cash flow will grow as more connected devices come online. BCE stock has sustained its 6% dividend growth for over a decade and has the potential to sustain it for another decade as 5G matures. 

Is now a good time to buy BCE stock?

The right time to invest in a Dividend Aristocrat like BCE is when the stock is trading at its low. As I said before, these stocks don’t give capital appreciation. If you buy dividend stocks at a higher price, your yield will be lower, and you will be disappointed to see your invested amount in red. 

But BCE stock has dipped 14% in the last 12 months. While the stock has recovered slightly from its 52-week low, it is still trading at an attractive price of $54. For $54, you can lock in the annual dividend of $3.87, which equates to a 7.14% yield.   

You get the dual benefit of locking in the same passive income for a cheaper price and lowering the decline in your invested amount. 

Can BCE stock price recover? 

The market has become bearish on stocks with high debts. Hence, BCE’s stock price has fallen. You can use this market bearishness to buy BCE stock in small quantities every month. It has a +40-year history of paying dividends without any cuts. Even now, its net debt is 3.5 times its adjusted earnings before interest, taxes, depreciation, and amortization, which is manageable. 

These fundamentals hint that the stock has the potential to recover. And if Canada avoids a recession, BCE stock will continue to rise. Now is a once-in-a-decade opportunity to buy BCE stock and lock in a +7% yield. And if a recession strikes, BCE would be a more favourable stock to buy, as you can get it for a 20% discount without worrying about a dividend cut. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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 »