Is BCE a Buy?

Some of the best long-term options for investors to consider are Canada’s telecoms. The telecoms offer a recurring revenue stream backed by a stable and increasingly necessary offering. They also offer some of the best dividends on the market. One of the largest telecoms often mentioned is BCE (TSX:BCE), but is BCE a buy right now?

Let’s try to answer that question.

BCE operates a very defensive business

BCE offers nationwide coverage across its core subscriber units. That includes wireline, wireless, internet and TV segments. The recurring revenue from those segments comprises the bulk of the company’s revenue. In the most recent quarter, that worked out to a whopping $6,080 million.

But that’s not all the company offers. BCE also operates a massive media segment, which consists of dozens of radio and TV stations. This not only provides an alternative revenue source but also one that is complementary to its core subscriber business.

Telecoms have always been defensive businesses, but in recent years, that appeal has increased. Specifically, I’m referring to the growth in both the wireless and internet offerings. That growth comes thanks to the growth in remote working as well as in mobile commerce.

In fact, in the most recent quarter, BCE reported its second-best quarter ever, with over 231,000 net subscriber activations in its wireless segment. The company also boasted a record 104,159 internet net activations.

But does this make BCE a buy right now?

The timing couldn’t be better to buy BCE

Despite running a very defensive business, BCE’s stock price has lagged the market. As of the time of writing, BCE trades at just over $55 and is down over 11% in the trailing 12-month period.

Part of the reason for that drop can be traced back to rising interest rates witnessed last year. Telecoms like BCE rely on lending to fund growth initiatives. As rates climb, so too does the cost of that growth. A similar slowdown can be seen in ad revenue stemming from BCE’s media segment.

While that’s dragged BCE’s stock price lower, prospective investors should note the inverse will happen if rates begin to drop. That’s something that pundits believe may begin to happen later this year.

If for no other reason, BCE has a very generous dividend

BCE has been paying out dividends for well over a century without fail. That’s an incredible amount of time which spans several recessions, wars and market fluctuations. In other words, it adds to the overall appeal of the stock as a defensive holding.

Today, that yield works out to a tasty 6.92%, making it one of the best dividend stocks on the market. To put that earnings potential into context, let’s consider a $30,000 investment (always as part of a larger, well-diversified portfolio)

For that initial outlay, investors can expect to generate a first-year income of just over 2,080. And while that may answer the question as to whether BCE is a buy, there’s one more intriguing point to take into consideration.

BCE has provided investors with annual bumps to that dividend for well over a decade. The company also plans to continue that cadence.

This means that investors who aren’t ready to draw on that income just yet can opt to reinvest those dividends until needed. This will allow any eventual income to grow further.

Final thoughts: Is BCE a buy?

No stock, even the most defensive is without some risk, and that includes BCE. Fortunately, BCE’s well-diversified and defensive operation makes it a great long-term option for investors to consider right now. Throw in BCE’s juicy dividend, and you have one of the best long-term options on the market.

In my opinion, BCE should form a small part of any well-diversified portfolio.