Its juicy dividend may be hard to pass up, but for those of us thinking of value investing in one of Canada’s telcos, BCE Inc (TSX, NYSE:BCE) is probably not your best option, says Greg Newman, senior wealth advisor at Scotia Wealth Management.
Long the favourite of income investors, Canadian telecom companies have gone through a less than spectacular first half of 2018. The big four — Rogers, Shaw, Telus and BCE — are all down for the year, with the blame in part falling on a rising interest rate environment.
But while the other three have spent the last couple of months making up almost all of those losses, BCE has not, currently down 9.8 per cent for the year and 13.6 per cent off a recent high of $62.90 set in mid-December.
Still, BCE has many attractive features: a wide set of businesses through its subsidiaries, Bell Canada and Bell Media, an established telecom infrastructure from coast to coast and let’s not forget that alluring dividend, currently yielding 5.59 per cent.
Granted, BCE’s yield is higher than the other three, but Rogers, Shaw and Telus all pay substantial dividends. Moreover, Newman says that the sustainability of BCE’s yield is now coming into question.
“It’s a nice, beautiful dividend that they continue to find ways to grow,” he told BNN Bloomberg. “But it is at an 85 per cent payout ratio, so that’s starting to get a little bit stretched.”
“If you want to buy a telco here, I think you can get a lot better growth with Rogers at these levels, with Telus at these levels and the one that I like best is Quebecor,” he says.
With a market capitalization only a fraction of BCE’s (but also paying a much smaller dividend), Quebecor Inc. (TSX:QBR.B) just hit a 12-month high on Friday and is up 12 per cent for 2018.
“If you bought BCE at $54-ish, I don’t think you have to sell it,” says Newman. “But I don’t think it’s going to do the heavy lifting from here, so I wouldn’t put fresh money into it now.”