BCE Stock Offers Value and Growth
BCE Inc. (NYSE:BCE, TSE:BCE) stock is up 28.12% year-to-date.
If you are not familiar with that name, consider “Bell Canada,” which is basically synonymous to “telephone” north of the border. It only makes sense; after all, the company was named after the inventor of the telephone, Alexander Graham Bell. As well, if you’ve ever used a payphone in Canada, you likely came across BCE’s logo.
The good news for investors in this name is that BCE diversified its line of business away from landlines and payphones long ago. In the process, it has become a telecommunications and media industry giant.
BCE is a staple in the Canadian economy, with 2016 marking 136 years of business, innovation, and growth at Bell. The telephone was a groundbreaking technology that has defined the communications space we live in today. Throughout the telecommunications industry’s evolution, BCE has remained at the forefront of technological changes—and that’s not about to change.
The following three reasons are why BCE stock will continue to surprise investors to the upside:
When companies grow to the size that BCE has attained, they sometimes come across bumps in the road and find it difficult to grow. I am happy to say this has not been an issue for the company. BCE can boast having achieved 42 consecutive quarters of uninterrupted year-over-year growth.
In the first quarter of 2016 (1Q16), BCE posted a net increase of 93,000 new subscribers in the business segments of postpaid wireless, IPTV (Internet protocol television), and high-speed Internet. This made BCE Canada’s broadband growth leader.
BCE has had no difficulties in maintaining—and growing—margins, either. EBITDA (earnings before interest, taxes, depreciation, and amortization) margins increased from 40% to 41%. Growth was seen across most of the company’s product lines with the exception of landlines. That segment of the business was expected to slow, though.
The company’s cash flow metrics saw significant growth. Free cash flow per share for 1Q16 came in at $0.48, compared to $0.27 in 1Q15. That’s an increase of 77.8%—an important number for those concerned about dividend growth.
Management has done a great job of growing BCE stock’s top and bottom lines and BCE investors have been rewarded.
BCE has a dividend policy of paying out between 65% and 75% of its free cash flow. This policy has contributed to 12 increases in its common dividend since the fourth quarter of 2008, resulting in a dividend increase of 87%. BCE stock currently yields a 4.52% dividend, or $2.73 per share.
In the current low-yield bond market environment, BCE’s dividend is very attractive. U.S. government 10-year bond yields sit at 1.51%, while Canadian government 10-year bond yields are around 1.059%. With those low numbers, it’s easy to see why 4.52% is attractive. And let’s not forget the preferential tax treatment of dividends over interest income.
If investors continue to reach for higher yields, we could see the price of BCE stock appreciate as investors bid up the price.
3. BCE Stock Chart
BCE stock has been trading in a consolidating range for approximately three months. After two failed attempts, BCE stock finally broke higher in July and it is currently successfully testing that midpoint consolidation level.
Chart courtesy of www.StockCharts.com
The price objective, assuming the pattern is a midpoint consolidation, is $56.00. The current levels also mark all-time highs, thus no overhead resistance exists. The general trend for equities is higher, as global equity indexes are forging new all-time highs. The path of least resistance is up.
The Bottom Line on BCE Stock
A pick like BCE stock offers investors an opportunity in value from its dividend and growth from its share price appreciation potential. If the current global phenomenon of negative risk-free rates continues, investors will continue to reach for yield. Given BCE’s tremendous track record for growth, there are numerous backwinds that could drive share prices higher. BCE stock shares are trading at all-time highs, yet BCE stock is still attractive.