Telus or BCE. Which Canadian telco stock is best?

Owning a name in the high dividend-paying Canadian telecom space is perennially described as good advice for anyone building a sound portfolio, but which one should you choose?

With its now six per cent yield, BCE (BCE Stock Quote, Chart, News TSX:BCE) may be a favourite but Ryan Bushell of Newhaven Asset Management says investors will likely do better with Telus (Telus Stock Quote, Chart, News TSX:T).

“I own BCE right now and I’ve actually considered switching that money into Telus and then just owning Telus at a larger weighting,” says Bushell, president and portfolio manager at Newhaven, speaking to BNN Bloomberg on Friday.

“I don’t like to count it out, and the way that the company has evolved over the past decade I think it’s been nothing short of outstanding —and my clients all have large capital gains so it would also be hard to make that trade on that basis in taxable accounts— but in terms of their capital expenditures, BCE is a little bit further behind Telus in terms of what they have to do on their fibre optic network,” said Bushell.

“We’re also seeing some interesting shifts in Ontario with the proposed Cogeco transaction doesn’t look likely to go through but you never know. It would create potentially stronger competition for BCE, as well,” Bushell said.

It’s been a poor year for Canada’s Big Three telecom companies, with BCE, Telus and Rogers all failing to make up ground lost when stocks plunged back in February and March. All three posted gains on Friday but BCE remains down eight per cent for the year, Telus is down five per cent and Rogers is down a full 19 per cent.

Rogers on Friday announced it would be willing to sweeten the deal for Montreal-headquartered telecommunications company Cogeco (Cogeco Stock Quote, Chart, News TSX:CCA), an attempted acquisition proposed with US firm Altice earlier this month. Rogers now has promised $3 billion in investments in Quebec’s wireless infrastructure and a pledge to keep the corporation headquartered in the province. Cogeco’s largest shareholder, the Audet family, has said that it isn’t interested in parting with the company.

Canadian telcos have had it rough during the COVID-19 pandemic, with revenues taking the hit due to items such as the closure of retail stores, travel restrictions which cut into roaming charges and the temporary shutdown of sports worldwide which hit both BCE’s Bell Media and Rogers.

BCE delivered its latest quarterly earnings in August where the company’s profit dropped by 64 per cent year-over-year to $294 million or $0.63 per share on an adjusted basis, which was lower than the analyst consensus of $0.69 per share. Bell Media saw a 31 per cent decrease in revenue as advertising dollars related to major league sports took a blow from COVID-19.

Bushell says there may be more risk with BCE in terms of its ability to maintain its dividend growth, making Telus potentially the safer bet.

“I like BCE. I’m just not sure, going forward. Their dividend yield is higher than Telus but their dividend growth will likely not be as strong, so on a diversification basis, I’m happy to own it, but at the same time I don’t think it's the strongest in the group at present,” Bushell said.