BCE (TSX:BCE) stock has come into the limelight for multiple reasons, including mass layoffs, retaliation to regulatory changes, capital expenditure cuts, high dividend payout ratios, and a dividend pause. Canadian telecom giants have been facing financial headwinds as multiple changes have come all at once.
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Financial headwinds of telecom companies
The major technology upgrade to 5G cost Canadian telcos 23% to 71% more than 4G, according to PwC. Just when the telcos had taken on significant debt to build the 5G infrastructure, interest rates surged from 0.25% to 5%.
While they paid higher interest expenses, the telcos entered into a price war that reduced the average revenue per user (ARPU), impacting their revenue.
Amid this chaos, the regulator asked BCE and Telus Corporation (TSX:T) to give competitors access to the fibre network they had spent billions to build, making network infrastructure investment unattractive.
When the going gets tough, the tough get going. This applies well to telcos. The telcos have accepted the new regulatory environment and are focusing on reducing balance sheet leverage and monetizing the 5G infrastructure.
While both BCE and Telus are good dividend stocks with nice yields, Telus’ dividends look safer than BCE’s. Here’s why.
BCE stock’s 12% yield is nice
BCE has a strong dividend history and robust management that aims to deliver returns to shareholders. The company has been accelerating its capital expenditure since 2020 to build the 5G infrastructure, which increased its debt. Rising capex and interest expense, the impairment cost of Bell Media assets, and severance pay for the job cuts have reduced its free cash flow in the last five years. However, the company continued to grow dividends, which increased its dividend payout ratio above 100%.
| BCE | Dividend payout |
| 2024 | 125% |
| 2023 | 111% |
| 2022 | 108% |
| 2021 | 105% |
| 2020 | 89% |
BCE is significantly reducing its capex for 2025, selling noncore assets, acquiring fast-growing businesses, and reducing debt costs. Moreover, it has paused dividend growth in 2025 and has instead offered a 2% discount from the average market price for Dividend Reinvestment Plan (DRIP) shares. This will reduce the cash outflow from dividends in the short term. It expects all these efforts to reduce its dividend payout ratio from 125% in 2024.
BCE also expects its revenue from legacy voice and data and traditional media to decline and sees growth in fibre, 5G wireless, and business and digital media. This transition could reduce revenue but increase earnings before interest, taxes, depreciation, and amortization (EBITDA). The company is focused on reducing its leverage ratio from 3.8 times adjusted EBITDA in 2024 to the targeted 3 times.
The company’s fundamentals will bottom out before growing. The hope of recovery makes BCE stock an attractive buy to lock in a 12% yield. However, there is a risk of a dividend cut in the short term if the regulatory or macro conditions change. The company could make up for a dividend cut with accelerated dividend growth in the medium term, making it a stock to buy and hold for the long term.
But this dividend stock looks safer
If you are not willing to take the risk of a short-term dividend cut, you could opt for a safer dividend stock like Telus Corporation. Likewise, Telus has invested heavily in the 5G network, was involved in price competition, and saw its average revenue per user reduced. Like BCE, Telus is selling its non-core assets to reduce its leverage ratio, which stood at 3.9 times its adjusted EBITDA in 2024.
However, the company is growing its revenue and net income by offering bundled services in other areas through its competitor networks. It has a better dividend payout ratio of 81%, which gives it the flexibility to continue growing dividends by 7% in the coming years. Now is a good time to lock in a 7.9% yield while the stock trades near its multi-year low.
Investor takeaway
Both BCE and Telus are good dividend stocks to buy and hold for the long term. And those who seek higher payouts later can opt for a DRIP. However, if you have to choose between the two, Telus is a relatively safer option than BCE and also offers higher dividend growth than BCE. BCE reduced its dividend growth from 5% in 2023 to 3% in 2024 to 0% in 2025. However, a higher yield and 2% discount on DRIP shares made up for the difference.
