Economists predict United States’ 2024 GDP (gross domestic product) growth will decline to 1.2% amid a slowdown in construction spending and manufacturing. The sharp decline in GDP growth from 5.2% in the third quarter could turn the equity markets volatile in the coming quarters. Meanwhile, investors can strengthen their portfolios by adding quality defensive stocks.
The telecom sector would be one of the safest sectors to invest in, given the growing demand for its services, stable cash flows due to recurring revenue sources, and a high initial investment that has created an entry barrier for new players. Let’s assess which among BCE (TSX:BCE) and Telus (TSX:T) would be a safer dividend stock to buy right now by looking at their recent performances and growth prospects.
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BCE
Last month, BCE reported its third-quarter performance, with its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) growing by 0.9% and 3.1%, respectively. It had 231,212 wireless net subscriber activations during the quarter, while average revenue per user remained stable. Besides, it also had 104,159 fiber internet net activations during the quarter, representing a 7.9% year-over-year increase.
Supported by these customer additions, its service revenue grew by 1.7%. However, lower product and media revenue weighed on its topline, offsetting some growth. The telecom also generated free cash flows of $754 million, representing a 17.4% increase from the previous year’s quarter. The company closed the quarter with liquidity of $4.5 billion. So, it is well-positioned to support its growth.
Meanwhile, BCE continues strengthening its 5G, 5G+, and broadband infrastructure. It hopes to expand its 5G and 5G+ coverage to 85% and 46% of the country’s population by the end of this year, respectively. Besides, the company is on track to add 650,000 direct fiber connections this year. So, the company’s growth prospects look healthy.
Supported by consistent performance, BCE has raised its dividend by over 5% annually for the previous 15 years. With a quarterly dividend of $0.9675/share, its forward yield is at 7.01%.
Telus
Telus also posted its third-quarter performance last month, with its revenue and adjusted EBITDA growing by 7.2% and 5.5%, respectively. Supported by its bundled services across wireless and fixed services, the company added 406,00 new customers, representing 17% year-over-year growth.
Besides, its revenue from the health services segment witnessed solid growth during the quarter amid the acquisition of LifeWorks and organic growth. However, the revenue from its agriculture and consumer goods services segment was relatively flat due to the ongoing macroeconomic headwinds. The company also generated free cash flows of $355 million, representing a 7.3% increase from the previous year.
Supported by its consistent performance, Telus has raised its dividends 25 times since 2011, with its forward yield at 5.80%. Meanwhile, the company continues to expand its 5G and broadband services. Besides, the continued strong performance from its high-growth segments could drive its financials in the coming years. Amid these growth initiatives, Telus’s management hopes to raise its dividend at an annualized rate of 7–10% through 2025.
Investors takeaway
Amid the growing demand for telecom services and stable cash flows, both BCE and Telus are excellent dividend stocks to have in your portfolio. However, I am more bullish on Telus due to its multiple growth drivers and more visibility on its future dividend growth.
