Shares of high-yield dividend dynamo BCE (TSX:BCE) have been under quite a bit of pressure for years now. And though the telecom industry may be lacking an upside catalyst going into year’s end, I still think the stock is getting so cheap that it may not take all that much to nudge the name higher (and its yield lower).
It’s not just the depressed multiple that I’m bullish about as we head into the summer months. Dividend stocks, especially those in the telecom scene, are overdue for a relief bounce after non-stop beatings from Mr. Market. And I think a rotation back to value could send BCE stock quite a bit higher over the coming months if the tech scene is in for a prolonged breather.
BCE stock: The road ahead
BCE stock actually rose just north of 1% on Friday, as the S&P 500 nosedived 0.9%. Given the oversold conditions, expect BCE shares to zig as the market zags from here. Of course, BCE can’t just rely on shifting market sentiment and a rotation out of tech plays. The company must shore up enough cash such that it can seize long-term opportunities (think the 5G buildout) while continuing to compensate investors for their patience (with a 9% dividend yield at the time of writing). Oh, and, of course, BCE needs to reduce its debt load.
Indeed, I’ve seen quite a few commentators give their opinion about whether BCE stock’s dividend is safe or destined for trimming. Undoubtedly, I never imagined that BCE would yield a dividend this swollen when the broader basket of Canadian telecom stocks was surging in 2021 and the early part of 2022.
Though rates have been much higher since BCE stock’s 2021 rally, and the payout ratio has gotten elevated in the face of uncertain macro headwinds, I continue to think that the BCE thesis hasn’t changed a whole lot, at least if you’re a long-term investor.
BCE stock’s already crashed nearly 40%: How low can it go?
Though things have grown a lot rougher, the stock is down more than 39%. That’s no mild pullback. Such a crash to multi-year lows, I believe, entails little in the way of expectation. And whenever you have estimates that have been so depressed, the stage may be set for a very sharp recovery rally.
Undoubtedly, things could get worse before they get better. That said, it’s always darkest before dawn. And for those who are willing to pick up the 9% yielder, I think the odds of decent returns over the next five years are quite high. Between the TSX Index and BCE stock, I’d much rather be in the latter, and not just for the super-sized dividend yield.
For now, though, BCE stock is unlikely to surge overnight. Recent analyst downgrades have hit shares over its slowed growth, so I’d only encourage investors to punch their ticket if they’re willing to stick with the name for at least the next five years. Indeed, shares could easily plunge below $40 per share before they return above $50.
