Looks may be deceiving. These days, investors taking a cursory glance at a stock like BCE (BCE Stock Quote, Chart, News, Analysts, Financials TSX:BCE) might see a name still well below its pre-pandemic levels and maybe wonder why would anyone bother?
But just the opposite is true, according to Paul Harris, partner at Harris Douglas Asset Management, who says you’d be hard-pressed to find a better-positioned company in the telco space.
“BCE is in a very unique situation,” says Harris, speaking on BNN Bloomberg on Wednesday. “It has a good yield at six per cent and I would say if you think of all the telecom companies, they’re in the best sweet spot.”
“They’ve seen really good growth on fibre to the home, they’ve got good deployment on 5G coming up and I think from a wireline and a wireless basis, they’ve got the best footprint in Canada today,” he said.
“Bell Media is doing better and I think they’re actually being very cost effective, which is going to help them increase their dividend,” Harris said.
BCE delivered first quarter earnings a couple of weeks ago, showing quarterly revenue growth for the first time in a year, with a Q1 topline up a slight 1.2 per cent year-over-year to $5.706 billion and adjusted EBITDA up 0.5 per cent to $2.429 billion. Adjusted EPS was down 1.3 per cent to $0.78 per share. Analysts had called for revenue of $5.62 billion and adjusted earnings of $0.73 per share.
“The speed and quality of our networks, the exclusive services that leverage them and our team’s commitment to champion customer experience helped grow Bell’s broadband market share in Q1 with 108,468 net new mobile, retail Internet and IPTV customers, a 51-per-cent increase over Q1 last year, alongside continued leadership in traditional and digital media platforms,” said BCE President and CEO Mirko Bibic in an April 29 press release.
“We’re building on this success with our accelerated fibre, rural and 5G network rollout program now under way to support Canada’s ongoing recovery and long-term broadband leadership, reflected in our significantly increased capital investment and network connection numbers in Q1, as we also continue to invest in our communities.” Bibic said.
All three of Canada’s big telecom companies, BCE, Telus and Rogers are still under their highs set in early 2020, representing a marked contrast to much of the market which ballooned over the back half of the (first) pandemic year. But BCE has picked it up of late, rising almost nine per cent since the start of March.
Breaking down BCE’s first quarter revenue by segment, Bell Wireless saw operating revenue grow by 3.2 per cent year-over-year to $2.100 billion, with product revenue up by a full 20.1 per cent to $586 million as customers bought more phones and electronics, and postpaid mobile phone net additions grew to 32,925 new customers.
On the Wireline side, revenue grew by 1.5 per cent with 10,696 net new retail IPTV subscribers and a 43-per-cent jump in Bell direct fibre retail Internet net adds.
Bell Media was the lone underperformer, dropping 5.2 per cent year-over-year to $713 million, as advertising spend has yet to return to pre-COVID levels. At the same time, Bell reported a 12-per-cent uptick in subscribers to its Crave streaming service.
Looking ahead, BCE said the company is still on track to hit its 2021 guidance numbers declared in February, which called for yearly revenue growth of between two and five per cent and adjusted EBITDA growth of the same.
For Harris, the large dividend will be key for BCE going forward, where the portfolio manager has confidence it’ll keep growing.
“I think the payout ratio will decline, but they will certainly increase their dividend, so I think they’re actually in a very good spot,” Harris said. “They can continue to increase their dividend albeit at a slower pace, but I think that’s what’s going to happen.”
“We own BCE in our equity portfolio and then we have a dividend portfolio that we manage for clients and we own Telus and BCE in that portfolio. Rogers, I think, it’s had some issues over the last little while, but those are the two companies that we think are best positioned to do well over the long term and really grow their dividends and grow their business,” Harris said.
As for the movement of interest rates, which have a relatively strong impact on utility stocks like BCE, Harris says the dividend should pull investors through any rough patches.
“People are worried about interest rates,” he said. “And they’re going to have a volatile climate as we see inflation numbers go up and you see interest rates as slightly more volatile. But I think there’s an opportunity to buy these things at the right price. [BCE] is a consistent dividend grower and I think they will continue to do that.”