Of all the public companies to complain about in the Canadian market this year, telco giant BCE (BCE Stock Quote, Chart TSX, NYSE:BCE) must surely be near the top of the list. Investors have watched as its share price keeps dwindling over the better part of eleven months now, all the while hanging onto the stock because of the sturdy, north of five per cent dividend.
What’s a shareholder to do? Stop griping, for one thing, says Kash Pashootan of First Avenue Investment Counsel, who argues that over the long haul, BCE is going to get you a very low risk solid return.
Unlike much of the market, BCE has seen a nice bump this October, perhaps an indication of investors searching for relative safety amid market turmoil. Since hitting a 12-month low of $50.72 on October 12, the stock has bounced 4.4 per cent, while still remaining down 12 per cent for the year.
But value investors shouldn’t be too concerned about the monthly and even yearly progress of a company like BCE, says Pashootan, CEO and chief investment officer at First Avenue, speaking to BNN Bloomberg, who claims that the stock was overbought.
“We own BCE. If you look at it over a ten-year period, you’re going to do fine,” Pashootan says. “If you look at it in smaller increments, at times you’re going to feel like, ‘Wow, the rates of returning are very good for a company that’s as large as BCE.’ And then at other increments you’re going to look at it and say, ‘I like the dividend but I’m losing a lot of money on the share price.’”
“That’s really the environment that we’ve faced the last few years,” he says. “You’ve had BCE’s share price appreciate arguably more than it should have, relative to the fact that it is a large, well-established business with multiple channels of revenue and reoccurring revenues, for that matter.”
Ahead of its third quarter earnings due on November 1, BCE shareholders will be looking for signs of stronger revenue growth than was exhibited last quarter when the company posted a marginal 1.7 per cent year-over-year uptick, while profits dropped 7.2 per cent year-over-year. At the same time, the company managed a consensus beat on wireless subscriber growth which grew by 122,000 new customers and followed up on similarly strong wireless numbers by competitors in the Canadian telco field.
Pashootan says investors need to look at the relative risk factor when considering a stock like BCE.
BCE Dividend Attractive
“The fact of the matter is that everything is relative to risk and when you buy a large, established company like BCE, you’re going to get your five per cent dividend, and if you get two, three per cent share price appreciation averaged out per year, you’re averaging somewhere in that seven, eight per cent rate of return, and that’s an excellent return relative to the risk that you’re taking,” he says.
“I think we’re in the environment now where it’s going to be lower than that, but averaged out over the long term, that’s the rate of return that I would expect from a BCE,” he says. “You’re going to be fine owning this long term and I absolutely think it makes sense as a long-term play.”