BCE should be a safe bet over 2019, this portfolio manager says

Like Canada’s other telecom companies, BCE (BCE Stock Quote, Chart TSX, NYSE:BCE) had a rough run earlier last year due to the higher interest rate environment, but with the market downturn beginning in October investors started to return to the relative safety of dividend-rich stocks like BCE.

What’s ahead for 2019? Hap Sneddon, chief portfolio manager at Castlemoore, says more of the same, with BCE likely to benefit from a pause in interest rate hikes this year.

Sneddon says that while BCE experienced a significant pullback over the month of December and hasn’t risen with the market upswing in recent weeks, there’s good indication that the stock will be a safe bet going forward.

“If you’re a long-term holder, I wouldn’t get too worried that it’s not participating [in the current market rally],” says Sneddon, to BNN Bloomberg. “What we did see in November, though, is that it came off from around $51 and moved smartly up to around $57, so that was a pretty good move. It hit its moving averages and it’s a little over-extended. It’s is probably going to stick in that range between $51 and $57.”

“If it broke below $51 then I’d say, okay, there are bigger inflation concerns, rates are going to go much, much higher [but] we don’t think they can go substantially higher,” he says.

BCE reported its third quarter 2018 earnings in November where the company beat analyst’s estimates on both its top and bottom lines, generating $5.88 billion in revenue, up 1.4 per cent year-over-year and better than the expected $5.8 billion, and 96 cents per share in adjusted earnings, also better than the expected 93 cents per share.

Like the other big telecom companies, BCE in 2018 saw good subscriber growth, especially over its wireless segment where the company chalked up an additional 178,000 subscriptions in its last quarter.

BCE, Rogers Communications and Telus were all down over the first few months of 2018, but whereas Rogers and Telus both picked up steam by early spring, BCE kept sliding until October when it started to gain back some of the ground it lost. BCE finished 2018 down 10.7 per cent, while Telus dropped 5.0 per cent and Rogers gained 9.2 per cent. Currently, BCE’s dividend yield is the best of the three at 5.5 per cent, with Telus next at 4.8 per cent and Rogers at 2.7 per cent.

“There was that defensive push [in October and November] and then the markets thought it was a little overdone,” Sneddon says. “Based on everything we see going forward, we shouldn’t see BCE getting out of that [$51 to $57] band, and you can collect your dividend for the time being.”