The stock has been on fire lately and with shares of BCE Inc (BCE Stock Quote, Charts, News, Analysts, Financials TSX:BCE) hitting all-time highs this week amid market turbulence. BCE seems to have become a safe haven, but is a tried and tested name like the Canadian telecom getting too ahead of itself? Not necessarily, says Mike Archibald of AGF Investments, who thinks the market is likely to keep showing the love to names like BCE.
“I think there’s been a preference in this marketplace for commodities and then for defensive exposure and I think telcos and utilities are some of the best companies to do that,” said Archibald, vice president and portfolio manager at AGF, who spoke on BNN Bloomberg on Friday.
“I think there’s also a desire for yield out there in the environment, and BCE still pays a dividend somewhere around five per cent, so it’s a steady Eddy company. In times of volatility, which is what we’ve seen in 2022 and in the in the fourth quarter of 2021, these types of companies tend to do fairly well,” he said.
BCE started climbing about a year ago, right at the time market darlings in tech and renewable energy began pulling back, a turnabout which really took a toll on growth stocks from November onwards. How has BCE done over that stretch? The stock returned 21 per cent last year, not including the dividend, while so far in 2022 it’s tacked on another 11 per cent.
Those are strong numbers for a stock that basically treaded water for the four years leading up to the pandemic in 2020, when shareholders were mostly happy to be pocketing their dividend income and leaving it at that.
But the current interest in utilities may seem a little odd seeing as we’re in a rising interest rate environment, since the typical wisdom has it that on the one hand higher rates make utilities less attractive compared to other investment vehicles and on the other hand make it more difficult for capital-intensive businesses like telecoms to make their earnings.
Yet, here we are with names like BCE, Rogers Communications (Rogers Communications Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B) and Telus (Telus Stock Quote, Charts, News, Analysts, Financials TSX:T) all rocketing higher.
Archibald says it’s the security of owning a utility that’s the draw right now.
“In a rising rate environment, telecom and some of the other defensive sectors are not necessarily the areas that have historically done as well,” he said. “This market cycle seems to be different in a lot of ways.”
“I don’t own BCE — I own Telus in the portfolio — but I think all the telcos look relatively attractive here. They continue to make in many cases all time highs, they are a leadership in this market and new money seems to be coming into the stocks on a regular basis,” Archibald said.
“So, we’d continue to stick with BCE here. I think as we get volatility in the next couple of quarters in the broader marketplace this is a name that should weather the storm very well,” he said.
Business has been good for Canada’s largest telco, which has sidestepped the drama around Rogers and its bid to acquire Shaw Communications while continuing to invest heavily in network infrastructure from coast-to-coast. BCE saw revenue growth of 2.5 per cent over 2021 with adjusted EPS increasing by 5.6 per cent over the previous year. Looking ahead, the company has called for 2022 revenue growth of between one and five per cent and earnings growth of between two and seven per cent.
Management commented in its fourth quarter 2021 report delivered in February that the company has mostly recovered from the ill effects of COVID-19 and that 2021 saw BCE surpass its own network expansion targets, installing 1.1 million new direct fibre and Wireless Home Internet locations and bringing mobile 5G networks to more than 70 per cent of Canadians.
“At Bell, we have been singularly focused on our purpose to advance how Canadians connect with each other and the world, and our strong execution and operational discipline to deliver on this purpose is paying off,” said President and CEO Mirko Bibic in a February 3 press release.
“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,” Bibic said.
BCE finished the fourth quarter 2021 with operating revenues up 1.8 per cent to $6.209 billion and adjusted net earnings down 5.3 per cent to $692 million. With the quarterly release, BCE also announced a 5.1 per cent increase to its annual dividend, bringing it to $3.68 per share.