BCE’s stock is looking attractive, this investor says

Canadian telecom stalwart BCE (BCE Stock Quote, Chart, News TSX:BCE) came a long way in 2019 — maybe a little too far if the past couple of months are any indication. But investors should keep an eye on the name in 2020 as an early dividend increase could be a boon for the stock according to investment manager Richard Croft.

“I like BCE, not so much for its growth prospects but because it has a solid dividend. It’s yielding about five per cent, so the cash flow is excellent,” says Croft, chief investment officer and portfolio manager for Croft Financial Group, in conversation with BNN Bloomberg on Friday.

Compared to Canada’s other big telcos, BCE was a poorer performer in 2018 but has made up for it in 2019. BCE is now up 12 per cent while Telus is up 11.5 per cent and Rogers is down 7.6 per cent.

BCE had gained a full 20 per cent between January and mid-October, hitting a high of $65.45 by October 10, but the stock has since experienced a pair of pullbacks, making for a potential money-making opportunity, says Croft.

“If you feel like you want more, I would write a put option on BCE at around $60 per share probably expiring in March or April,” says Croft. “If you sell a put option, you are basically obligated to buy more shares at $60 per share. You’ll get some money in your pocket for doing that and if you get the stock you’re getting it at a price would’ve paid right now.”

“BCE has a long history of increasing their dividend and my suspicion is that they will increase their dividend again in January. If they do that, buy it, because that’s the best indication that management is comfortable with where the business is and where it’s going. And I think that trumps all the analyst calls, including mine, that you can get on anything,” says Croft.

BCE saw good growth in its wireless segment in 2019, exemplified in the company’s third quarter earnings results delivered in late October. BCE posted 204,000 wireless net adds, almost a 15-per-cent year-over-year increase, with total wireless, retail and IPTV net customer adds of 293,950, up 8.4 per cent. The quarter was more or less in line with analysts’ estimates, with revenue at $5.98 billion and adjusted EBITDA up 5.6 per cent to $2.96 billion.

Canada’s telecom companies are undergoing some major shifts with the oncoming 5G revolution as well as a recent move to unlimited data plans across wireless subscriptions.

In its third quarter comments, BCE management said capital spending will be focused on the further expansion of its fibre and fixed wireless footprints along with expansion of its fibre backhaul in preparation for the launch of 5G service.

BCE saw increased adoption of its unlimited data plans and instalment payment plans over the last quarter, a strategy initiated by Rogers this past June and quickly followed up by both Telus and BCE.