BCE Stock. Buy, Sell or Hold?

There are few safe bets in these turbulent times but buying BCE (BCE Stock Quote, Chart, News TSX:BCE) should be one of them, says David Baskin, president of Baskin Wealth Management, who calls BCE one of his Top Picks for the next 12 months.

Baskin argues that with consumers devoted to their cellphones and Netflix subscriptions, BCE’s business, while not fully pandemic-proof, is as good as it gets over the long term.

And don’t forget about that six per cent dividend.

BCE’s share price has been as flat as they come over the past few months as investors have surprisingly flocked to growth stocks during the current economic upheaval and ignored the relative security of utilities and high-yield names like those in the Canadian telecom sector.

Year-to-date, BCE is down 4.5 per cent as the stock has struggled to lift to highs set early in the year, while the longer-term story is perhaps even less appealing: currently at $57 per share, BCE is treading the same territory it did five years ago.

But there’s no denying that a steady-as-she-goes stock combined with a hefty dividend are appealing traits, says Baskin.

“I'm looking for things that are necessary services, ones that people are going to keep spending money on whether there's a vaccine or when there's a vaccine and how effective the vaccine is,” Baskin said, in conversation with BNN Bloomberg on Wednesday. “And we know that people love their cell phones. They’ll give up a lot of things before they'll give up their cell phone, but they'll give up their cell phone before they give up their home internet and their Netflix or or Amazon Prime or whatever it is they're watching on TV.”

“We’re using more and more bandwidth all the time, we’re using more and more data and we have to store more data. Of course, landline business as a legacy business is disappearing, but is being replaced by fibre and 5G,” Baskin said.

Softening customer demand has been the name of the game for Canada’s telco companies during COVID-19, a trend on display in BCE’s latest quarterly results delivered in early August. There, operating revenues dropped 9.1 per cent from a year earlier to $5.354 billion while adjusted EBITDA fell 9.4 per cent to $2.331 billion. At the same time, the company’s free cash flow was strong, coming in at $1.611 billion and up 50 per cent year-over-year.

“Although we don't expect to return to pre-COVID operating performance in the near term, Q3 is anticipated to show a marked improvement. We remain very confident in the underlying long-term fundamentals and performance of BCE,” said BCE CEO and president Mirko Bibic in a press release.

With dividend-paying companies, there’s always the risk that lean times might force companies to cut their dividend, but Baskin thinks we won’t be seeing that from BCE anytime soon.

“You get a dividend yield of six per cent from this stock — six per cent when bonds are paying half of one per cent, which seems to be pretty attractive — and I don't think anybody is questioning the sustainability of the BCG dividend,” Baskin said.

“So, a necessary service, paying a great dividend and the stock trading at a reasonable price and growing in all kinds of interesting ways with fibre optic and 5G. This seems to me to be a terrific addition to almost any portfolio,” Baskin said.