BCE does not have much upside, Ryan Bushell says

No one wants a recession but planning for one should be part of every investor’s mindset, so goes the traditional wisdom. Which brings us to the utilities, which while often not promising much in terms of share price appreciation can nonetheless deliver on dividend yield. That logic clearly fits the bill for Canadian telco BCE (BCE News, Stock Quote, Chart TSX:BCE), says Ryan Bushell, who sees question marks concerning the company’s growth prospects over the next few years.

“The company has seen great, solid dividend growth and good share price appreciation,” said Bushell president and portfolio manager at Newhaven Asset Management, to BNN Bloomberg Tuesday. “Going forward, I think that the environment is getting tougher. We’re seeing a bit of a price war on wireless, not so much on pricing but on the amount of data that’s being offered, which is cannibalizing pricing to some extent.”

“They think they’ll make it back on upgrading subscribers over time, but they’re also fighting a big cap ex battle — 5G is still out there a bit but right now they’re still doing the fibre build in the [Greater Toronto Area], BCE specifically. And so, I worry a bit about the fundamentals of the company deteriorating over the next couple of years,” he says.

BCE’s share price had a rough go of it for much of 2018 as a threats of a rising interest rate environment weighed heavily on the telco stocks, but the opposite has been the case in 2019, as key lending rates in the US and Canada are projected to remain steady or even decrease. The shift has propelled BCE up 11 per cent year-to-date and has the stock hovering around the $60 mark.

Bushell says interest rates aren’t likely to take off any time soon, which is good news for BCE shareholders, where the dividend yield currently sits at 5.3 per cent.

“One of my key overriding theses in the portfolio is that while we may see interest rates rise, we’re not going to see them rise on a secular basis, and so these types of stocks should command a higher multiple over time,” Bushell said.

“The bond proxy nature, you can’t get a five-per-cent yield on a bond with some growth in your coupon and get better tax treatment and get some share price appreciation over time, so I still think that these types of companies warrant a higher multiple, which is why I continue to hold onto them,” he said. “With BCE, I’m looking at it with a bit of a jaundiced eye to say that I don’t think it’s going to be higher than $60 so I’m not planning on getting much more than the yield over the next few years until we see the next leg of growth.”

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