Looking for a defensive play in these turbulent times? Try a Canadian telco, says Greg Newman of Scotia Wealth, who thinks either BCE (BCE Stock Quote, Chart, News TSX:BCE) or Telus (Telus Stock Quote, Chart, News TSX:T) would be a smart choice right now, but Telus might have a slight edge.
Canada’s telecom names have long been the go-to move for the defensive-minded, where the dividends are plentiful and the companies are consistently churning out profits on a quarterly basis.
The ultra-low interest environment can’t hurt either, making life easier for utilities to handle their debt along with allowing them to look more attractive next to almost anything in the bond market.
Both BCE and Telus are well off their recent highs, as per the norm across all stocks in the COVID-19 era, but neither was terribly hard hit by comparison with the rest of the market.
At its worst (so far), BCE was down 29 per cent but the stock quickly recovered to currently sit 11 per cent off its mid-February high.
Telus was already dropping when the market crashed in late February, ultimately taking the stock down 29 per cent before rebounding to currently sit 14 per cent below its pre-crash price.
One factor in their favour is that the telecom space isn’t likely to experience much of a decline over the current recession, as Internet and phones are more or less essential to everybody. And with remote work expected to become more the norm even post-COVID-19, the tailwinds are there for names like Telus and BCE.
Newman says both companies have their strengths within today’s work-from-home environment and the need for greater and better connectivity.
“They're both great, in my opinion. Both benefit from the thirst for more data,” says Newman, portfolio manager and senior wealth advisor for Scotia Wealth, who spoke with BNN Bloomberg Wednesday.
“What you had was a regime in Ottawa previous to this crisis that wanted to cut their pricing [but] what you’re going to have now is probably a push for them to be able to reinvest, to invest more in their networks. And both are beneficiaries of 5G,” Newman said.
“Yes, Telus is more wireless and BCE is a little bit more defensive maybe in terms of being landline, but Telus has Telus International, which they’re going to spin out, and they have Telus Health,” he said.
Both BCE and Telus have healthy track records of upping their dividends on a regular basis —BCE has increased its dividend each year over the past 11 years while Telus is on a 16-year increasing streak. Currently, BCE’s dividend yield sits at 5.7 per cent and Telus is at 5.1 per cent.
“Both are really good and I like their dividend in both cases,” says Newman. “Which would I buy between the two? I like both, buy them both. But between the two right now I think Telus is the better buy.”