Canadian telecom heavyweight BCE Inc. (TSX: BCE) is finally showing signs of dipping on the market. Income investors need not worry. The stock pays a healthy dividend yielding 4.5 percent. Its buyout of Q9 Networks for $675M (including debt) should bring higher profitability for the data center segment.
BCE is the second cheapest stock among the telecom firms. Its P/E is 19x, compared to 20.5x for Rogers Communications (RCI) and 18x for Telus. Telus may look cheapest, but its business relies entirely on wireless signups. Rogers owns a baseball team, has a Media division, and is still growing with its wireless division. BCE owns Bell Media and even with higher planned capital spending, will keep growing its dividend.
Customer churn for Bell’s wireless is low. The firm is rolling out LTE Advanced. As coverage widens, revenue per customer will go up. The internet services unit now has 2.6 million customers on fiber. Data streaming may go as high as 1-gig, though 50 meg service is the most popular choice. Competitors might offer unlimited service, but management noted on its conference call it is still taking their customers. Per the second quarter conference call:
“One of the things we think we saw some migration to some of the other speeds and one of our competitors talking about is that is where they were offering unlimited Internet without billing for access, so that would drive customers to that particular tier, not necessarily driven by the speed. And so, that's one of the competitive differences as you see off and on in different promotions in the marketplace. But there's no doubt where we have IPTV and where we have fiber is where we see the best market share growth for us.”
Takeaway
BCE’s listing on Canada’s TSX will not face exchange rate fluctuations for shareholders. BCE’s stock price on the U.S. market is down due to the weak Canadian dollar. Investors seeking dividend income should keep that in mind.
