BCE’s stock is worth a look, this portfolio manager says

Canadian telco BCE Inc. (TSX, NYSE:BCE) has been a disappointment of a stock so far this year, but at its current price in the low $50 range, investors should be paying attention, says Tim Regan, managing director at Kingwest and Company.

Yesterday, BCE hit its 52-week low at $52.36, a far cry from the high of $62.90 reached back in December and representing a troubling dip below the stock’s support level at $53.00.

All of Canada’s larger telecommunication companies — including Rogers, Telus, Quebecor and Shaw — have hit on hard times this year, with the blame falling on a higher interest rate environment coupled with worries over cord-cutting by TV subscribers and a maturing wireless sector.

Nevertheless, Regan claims the pullback on BCE may have gotten out of hand.

“Where it’s priced, we like it here,” Regan told BNN Bloomberg recently. “In the mid-60s is probably where we think it should trade at. Bell does very well in wireless, in internet. If you look at not just the media, they have a big stake in Maple Leafs Sports and Entertainment, which is actually a great asset. I think that asset tends to be undervalued because it doesn’t make as much money, but it’s a very valuable,” he says.

BCE reported its second quarter earnings at the start of August, beating expectations for wireless subscriber growth by adding 122,092 new customers. Yet total revenue improved by a slim 1.7 per cent year-over-year, while the company’s Q2 profit $755 million represented a 7.2 per cent year-over-year decline.

Competition in the telecommunications sector is heating up, with BCE currently in a battle with Rogers for the internet and TV subscribers in the lucrative Greater Toronto Area. At the same time, Shaw’s budget wireless service Freedom Mobile has been putting pricing pressure on the other telecom companies.

At the same time, BCE is certainly the pick of the litter for dividend-hungry investors, as its 5.54 per cent yield is markedly better than the rest of the field: Shaw’s yield is 4.71 per cent, Telus’ is 4.20 per cent, Rogers’ is 2.82 per cent and Quebecor’s is 0.64 per cent.

“It’s a very mature company that’s paying out a little more of its cash flow in dividends but now the earnings are catching up to the dividend payout ratio,” says Regan. “Whereas your five-year return on the share price is a little over 20 per cent, you’ve been picking up over five per cent a year as well on the dividend.”