Choose BCE for income investing, this portfolio manager says

Canadian telecommunications company BCE (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) has been a winner of a stock to own over the past year and with a new bump to its already substantial dividend, investors will want to have a name like this in their portfolios, says David Burrows of Barometer Capital Management.

“BCE really fits in the camp of a more defensive dividend payer, and I think it’s going to do fine,” said Burrows, president and chief investment strategist at Barometer, who spoke on BNN Bloomberg on Thursday.

“They’re growing their earnings at a rate of five to six per cent and the dividend is a good one at 5.5 per cent. It’s going to be a slow dividend grower, so it will provide income and it will rise a little as rates rise,” he said.

BCE reported its fourth quarter 2021 financials last week, showing slow revenue and earnings growth as the pandemic continues to have its effect on money-makers within its business such as roaming charges and product and advertising sales. The company’s Q4 revenue was up 1.8 per cent year-over-year to $6.21 billion while earnings fell 29 per cent to $658 million with a tough year-over-year comparison due to a one-time gain during the previous fourth quarter. On an adjusted basis, earnings were down six per cent to $0.76 per share. Analysts had been calling for revenue of $6.23 billion and adjusted EPS of $0.73 per share.

The full 2021 year saw BCE’s revenue climb 2.5 per cent to $23.449 billion and adjusted earnings up 6.0 per cent to $2.730 billion. For the year ahead, BCE said 2022 should see revenue growth between one and five per cent ad adjusted EPS growth of between two and seven per cent. 

The company said the 2021 results showed that business has mostly recovered from COVID’s impact although uncertainties persist as to how operations might be affected this year.

“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 ten years,” said Mirko Bibic, President and CEO, in a press release.

The bulk of its 5G network infrastructure buildout is now under its belt, with BCE saying its 5G network now covers over 70 per cent of the Canadian population. The company’s capital expenditures were up to $4.837 billion in 2021 compared to $4.202 billion in 2020.

“As we look ahead to 2022, we plan to reach up to 900,000 more homes and businesses with direct fibre connections and expand the reach of our 5G network to meet our growing customer needs. And in every interaction, we will continue to build on the gains we made in making it easier for our customers to do business with us, and keep them at the centre of everything we do,” Bibic said.

And while the first full year of the pandemic didn’t see the lift to defensively-minded stocks like BCE that some may have expected, the company made up for it over 2021, where BCE’s share price rose 21 per cent. So far in 2022, the stock is up about one per cent. 

With its fourth quarter report, BCE said it would be raising its dividend by 5.1 per cent or $0.18 per share, bringing it to $3.68 per share. It’s now the 14th year in a row where BCE has raised its dividend by at least five per cent, and the stock already comes with a strong dividend yield of 5.5 per cent, the best among Canada’s telco stocks.

But on BCE, Burrows says income-focused investors will also want to have some stronger dividend growers in their portfolios, especially during these times of higher inflation.

“[BCE] is not going to be the most inflation protected income investment you’re going to have but it’ll be a workhorse as long as you’ve got other holdings that are going to have significant dividend growth like ten to 12 or 13 per cent a year, it’ll be a volatility dampener in your portfolio,” he said.

“The thing I want to say is that there’s a giant pile of investors in the fixed income camp and things that look like fixed income. Those people are the ones that are moving their feet right now, and it’ll happen over a long period of time from that sort of bond-oriented, bond proxy camp into dividend growth,” Burrows said. 

“And so I would encourage you that for a yield, you want to look for dividend growers because in a period of reflation and rising rates, dividend growth winds up being the theme that benefits the most,” he said.