BCE Inc.’s (BCE Stock Quote, Chart TSX, NYSE:BCE) share price may be trending lower but the stock’s payout ratio is looking great compared to its telecom peers, says Rob Tetrault of Canaccord Genuity.
BCE finished down more than one per cent in trading on Monday, hitting a 12-month low of $51.81. That’s 17.6 per cent off a high of $62.90 hit last December when the stock first began its steady decline.
Rising interest rates are partly to blame, as conservative investors continue to flee utilities in the search of better income-oriented prospects.
Compared to stocks like Telus and Rogers which have both made up most of their early-2018 losses (although both have pulled back over the past month), BCE has yet to show signs of life.
“We’re seeing some people dump these now in lieu of bonds,” says Tetrault, portfolio manager and head of Tetrault Wealth Advisory Group at Canaccord Genuity, to BNN Bloomberg , “so there’s been a bit of an influx in the past while. Yields have gone up where you’re now able to get a bond with about four per cent, and some people would rather own that than own a telco at five.”
“With a [price-earnings] ratio of 17 and a yield of 5.6 per cent, your payout ratio is in the 80-90 per cent range, which is very high for a telco,” says Tetrault. “The telcos, obviously, are down quite a bit [but] BCE is in a good space in the telco space in Canada.”
Last month, BCE produced a consensus beat on its quarterly wireless subscription growth yet the company saw its profit drop 7.2 per cent year-over-year. The company says it’s positioning itself for the upcoming transition to 5G wireless networks, arguing that it’s putting “significant focus” on its broadband networks as the future of communications.
“Our position with fibre for 5G and the (Internet of Things) world is going to be the envy of the world,” said chief executive George Cope at the company’s annual general meeting in May. “It’s an incredible strategic position. We are well, well ahead of our No. 1 competitor in that way,” Cope said.
Tetrault says, “I’m always fearful of telcos due to the potential for regulation. But BCE is a strong player in the space and I think the dividend is safe.”