BCE is still a solid play, this portfolio manager says

The stock has done very well over the past year but Canadian telecom company BCE Inc (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) is still a good move for investors looking for a defensive play during turbulent times in the markets. That’s according to Stephen Takacsy of Lester Asset Management, who says even though BCE is getting expensive, the dividend remains very attractive.

“BCE is one of our long-term, core holdings and the company has been a stellar performer during the market volatility,” said Takacsy, CEO at Lester Asset Management, who spoke on BNN Bloomberg on Friday. “It’s a great business. We also own Telus. You can sleep at night with these stocks when they when the markets are cratering.”

BCE raised its dividend earlier this month, bumping it up to $3.68 per share annually for a 5.1 per cent raise, as the company reported a healthy fourth quarter 2021, all things considered. BCE’s earnings dropped a full 29 per cent to $658 million for the Q4 but revenue climbed two per cent to $6.2 billion, with the company reporting the best annual retail residential net subscriber performance in ten years. 

“Bell’s solid performance in Q4 and throughout 2021 reflect the steady demand for fast, reliable and innovative services to keep residents and businesses connected, informed and productive with net new mobile phone and mobile connected device, retail Internet and IPTV subscriber additions of 225,533 in Q4, and our best annual retail residential net subscriber performance in 10 years,” said Mirko Bibic, President and CEO, in a February 2 press release.

BCE said it will continue its 5G network buildout in 2022, extending direct fibre connections to 900,000 more homes while at the same time projecting revenue growth of between one and five per cent for the year, with adjusted EPS expected to tick higher at between two and seven per cent above 2021’s earnings. Free cash flow, which was down 10.5 per cent in 2021 to $2.995 billion as a result of higher capex, is also expected to rise by between two and ten per cent in 2022.

The drop in free cash flow shouldn’t trouble shareholders, Takacsy said, since all the telecommunications companies are currently in a major infrastructure buildout phase.

“As for free cash flow, you have to be careful how you measure that. These companies like Bell or Telus have been investing massively in upgrading their networks and infrastructure and so you have to look at the capital intensity from one year to the next during these investment cycles,” Takacsy said.

“[BCE] does generate a lot of cash flow from operations, which they’ve been reinvesting in the business and which is the right thing to do as a shareholder. And, yes, they’ve been increasing the dividend every year,” he said.

The Canadian telco stocks did well overall in 2021 after a poorer showing during Year One of the pandemic when investors were flooding into tech stocks and other growth names. The reverse is now seemingly in vogue, with defensive stocks and value plays seeing more attention. 

For BCE, that made for a 21 per cent return over 2021 and about another two per cent on top so far in 2022. As for the other big telcos, Telus Corp (Telus Corp Stock Quote, Charts, News, Analysts, Financials TSX:T) returned 18 per cent last year and is up almost eight per cent in 2022 while Rogers Communications (Rogers Communications Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B) was up just two per cent last year and is up almost eight per cent so far this year.

“Bell’s growth is somewhat more anemic than some of the other comps — Telus is into many other different businesses — but Bell is rock solid,” Takacsy said. “It’s still yielding over a five per cent dividend yield.”

“It’s a bit pricey. As  the banks are a bit pricey, the telcos are a bit pricey, but people are seeking refuge in these types of stocks during these more volatile markets,” Takacsy said.

Bell announced earlier this month that it was rated Canada’s fastest 5G mobile network, according to the Ookla 2021 Speedtest Awards, making it the second year in a row for Bell. 

“With this award, Bell’s 5G network continues to be the most awarded with recent top honours from Global Wireless Solutions (GWS) for best 5G network and PCMag for fastest mobile network (4G and 5G) overall. Bell 5G also outpaces the major 5G networks in the United States, according to PCMag in its 2021 fastest mobile network Canada report,” Bell said in a press release.

As far as 5G coverage goes in Canada, Bell said it reached its target at the end of 2021 by offering coverage to over 70 per cent of the population.