Canadian telecom company BCE Inc (TSX,NYSE:BCE) may be a favourite among dividend-seeking investors, but the stock’s poor performance along with dismal prospects in the sector are clear warning signs, says Mike Archibald, associate portfolio manager at AGF Investments, who argues that growth investors, in particular, should be looking elsewhere.
BCE’s share price has been batted around for much of 2018, starting the year at $60.25 and now down to $53.14 as of Friday’s close, a 12 per cent decrease for the year. While often travelling in tandem, that continued dropoff hasn’t been witnessed by telco rivals, Rogers Communications (TSX:RCI.B) and Telus Corp (TSX:T), which have both recovered most of their losses incurred earlier this year.
And while BCE’s dividend yield (currently at 5.65 per cent) is looking ever more attractive, there’s less to be optimistic about in terms of the company’s growth prospects, says Archibald.
“If you’re holding it from a dividend growth perspective then it’s probably a good asset to continue to own,” Archibald told BNN Bloomberg this week. “We don’t own any of the telcos in our portfolio. We just don’t see a lot of growth there.”
“Obviously, you’ve got the challenges of cord-cutting,” he says. “These guys are probably going to continue to raise prices in wireless because that’s where the growth is coming from in Internet, and you’re losing TV subscribers across the board.”
Last week, BCE reported its second quarter 2018 financials, which came in largely in line with expectations, featuring a beat on wireless customer adds, total revenue which climbed 1.7 per cent compared to last year’s Q2 and an adjusted EBITDA growth of 2.0 per cent compared to the same period last year.
Overall profit for the quarter dropped to $755 million, a 7.2 per cent decline over Q2/17, while its average billing per user rate slowed for the quarter. BCE’s customer turnover rate is also highest among the big three telcos at 1.1 per cent compared to Rogers’ 1.0 per cent and Telus’ 0.8 per cent. BCE posted 15,000 new TV subscribers, a surprise in analysts’ eyes which bucked the trend in recent years.
“[Cord-cutting] is going to continue on as more people are using over-the-air antennas and other wireless options to access television,” says Archibald.
“I think it’s something where you’re going to continue to get dividend growth,” he says. “Maybe if it moves itself back up to the $58-$60 level, you look to exit and find something that gives you a little bit better dividend growth, perhaps in the REIT sector or somewhere else like that.”