Where Will BCE Stock Be in 5 Years? 

BCE (TSX:BCE) stock keeps falling.

• It fell more than 20% from April to October 2022 due to an interest rate hike.
• Another 20% dip came between April and October 2023 as BCE entered into a price war with Telus Corporation to poach Shaw Communications customers. The price war reduced its profit margins, which were already stressed by rising interest expenses.
• The third 20% meltdown was from January to July 2024 as BCE restructuring led to thousands of job cuts and significant losses.
• The fourth meltdown of 24% came in November 2024 as BCE reported disappointing third-quarter earnings, a whopping $1.2 billion write-off, and a pause in dividend growth.

The company’s market capitalization has more than halved in the last 32 months. Is there more downside?

The revamp of the Canadian telecom sector

The last three years (almost) have been a turnaround story for the Canadian telecom sector. It saw the acquisition of Shaw by Rogers and the rise of Quebecor after the acquisition of Shaw’s Videotron. Even Cogeco Communications’ stock price surged from June 2024 onwards after halving since April 2022. The stocks of small players saw an uptick, while those of big players continued to slide. Does this mean a power shift is underway?

The nature of the telecom sector is capital-intensive. Unless small players pour in billions of dollars and build a dense fibre network that can support 5G in the vast lands of Canada, they cannot capture the market share. The power shift was visible as the regulator asked BCE and Telus to share their fibre network with small players at discounted prices. Moreover, the sector is undergoing a technical upgrade from 4G to 5G.

The 5G opportunity

It takes four to five years to tap the opportunity that comes with a technical upgrade. The 5G buildout brings broadband-like speed to the internet-of-things (IoT) devices and allows artificial intelligence (AI) at the edge. A secure cloud network and digitization will move to the next level and create multiple opportunities to cross-sell. Internet connections will become cheaper and the revenue opportunities wider as more devices connect to the internet.

To monetize the 5G opportunities beyond selling mobile subscriptions, one needs an ecosystem, and BCE and Telus are building that. The generative AI frenzy can become more accessible with 5G. The next two years could be a year of recovery for BCE as it addresses the significant debt it took on to build the 5G infrastructure.

BCE’s restructuring, such as selling radio stations and electronics stores, might be too much to take. It may also reduce revenue and profits in the short term. However, the telco is moving in the right direction and embracing technology as it has realized providing internet is not enough.

I wouldn’t be surprised if the company keeps its dividend growth paused for the next two to three years. However, it will compensate for these years with accelerated dividend growth once it cashes in on the 5G opportunity.

Expected returns from BCE in the next five years

If you are considering buying the stock when dividend growth resumes, you are missing out on an 11.6% yield and a 2% discount on the dividend reinvestment plan (DRIP). Most value investors buy stocks that are in trouble but have a management that can lead them on the road to recovery. Because of these difficult times, the company offers the most lucrative deals to investors to stay invested.

A $3,000 investment can buy you 87 BCE shares now, instead of 54 shares on any normal business day when the stock trades at $55. I assumed no dividend growth for three years and 3% growth from 2028 onwards. The high dividend and low share price could buy 10 DRIP shares annually, giving you the advantage of a higher share count when BCE boosts its dividend growth.