BCE is no AT&T and that’s a good thing, this portfolio manager says

You’re barking up the wrong tree if you’re looking for share price appreciation with Canadian telco stalwart BCE (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) but that doesn’t mean the stock has no place in your portfolio, says Jamie Murray of the Murray Wealth Group. With the company’s track record of solid investment infrastructure investment, Murray says BCE’s juicy dividend safe for years to come.

“BCE’s dividend yield, I think the last I looked five and a half per cent. I really do think it’s a name that you only hold if you’re looking for that dividend income,” said Murray, head of research at Murray Wealth, who spoke on BNN Bloomberg on Monday. “It’s had some growth in wireless and they’re expanding their home internet and upgrading to more fibre optic higher speeds. That’s been a big investment and I think that’s going to start to play out a little bit in the financials in terms of starting to see some return on that.”

Bell announced earlier this year the framework for its accelerated capital investment plan which will see the company shell out a whopping $14 billion in broadband network infrastructure and fibre connections nationwide. In particular Bell is committed to billions of that spending to increase wireline and wireless connections in urban but also rural settings over the next two years.

Bell also paid $2.07 billion in July to acquire hundreds more licenses for additional mid-band wireless spectrum in an auction by Innovation, Science and Economic Development Canada as part of the country’s gradual transition to 5G networks. Bell says it now holds 37 per cent of the high-value spectrum available to wireless carriers in Canada, with the company saying its 5G networks will cover about 70 per cent of the population by the end of the year.

“Underscoring the Bell team’s goal to advance how Canadians connect with each other and the world, acquiring this significant additional 3500 MHz spectrum will drive Bell’s ongoing leadership in 5G, a critical component in our multibillion-dollar program to accelerate investment in Canada’s next-generation network infrastructure and services,” said Mirko Bibic, President and CEO of BCE and Bell Canada, in a press release.

Murray says BCE shareholders can be thankful that they’re not in the position held by AT&T shareholders who after literally decades of maintaining a healthy dividend announced earlier this year that as part of the planned spin-off of WarnerMedia, set to merge with Discovery, AT&T will be reducing its dividend by nearly half.

“I think [BCE’s] dividend is safe. I wouldn’t be looking at it like, for example, AT&T in the US where they’re forced to cut their dividend after years of high investments underperforming,” Murray said.

“First, Canadian markets are a little bit less competitive, as we always talk about [Canada’s] world-high prices for wireless services. As well, BCE hasn’t had the capital allocation missteps that a lot of these other major telecom companies have where they have to cut the dividend. So it’s not something we’re looking at,” he said.

“I would be holding BCE if I was for dividend income, but if I was looking for more growth in return I’d be looking at other stocks,” Murray said.

After a dismal 2020 where all of Canada’s telecom stocks performed poorly, including BCE which finished with a return of negative 9.5 per cent, 2021 has been a lot better, with BCE currently up about 16 per cent year-to-date.

Ahead of BCE’s third quarter financials due on November 4, the company last reported earnings in August where Q2 numbers showed revenue up 6.4 per cent year-over-year to $5.698 billion and adjusted net earnings up a huge 31.1 per cent to $751 million or $0.83 per share. Analysts had been expecting $5.73 billion in revenue and EPS of $0.79 per share.

“A year after COVID-19’s initial impacts in early 2020, we’ve achieved strong, sequential improvement in total customer net additions; increased consolidated revenue and adjusted EBITDA more than six per cent, with leading growth in wireless service revenue and ABPU; and further accelerated capital spending to drive the next-generation networks and service innovations critical to Canada’s recovery and long-term economic growth,” said Bibic in a press release.

BCE reported 44,433 in postpaid mobile phone net additions and 47,449 in net mobile connected device additions, up 22 per cent compared to the same period a year earlier. Retail internet fibre net additions were also up 80 per cent compared to 2020’s second quarter to 27,112.

“BCE is in an exceptional financial and competitive position, with a strong investment grade balance sheet underpinned by $5.3 billion of available liquidity at the end of Q2 and fully funded defined benefit pension plans,” said CFO Glen LeBlanc in a press release. 

“With a second quarter of healthy consolidated growth, we remain on track to meet our financial guidance targets for full-year 2021, even taking into account higher spending under our recently upsized capital investment acceleration program,” LeBlanc said.