BCE Inc. BCE-T had a good run as a friend of dividend investors, but that’s over.
The dividend cut announced by the company last week means it’s time to sell if you’re an investor focused on dividend income. That’s what I’m doing with my small holding.
BCE produced consistent dividend growth for about 15 years, then announced six months ago that it would stop increasing its payout to conserve cash. The decision to cut the dividend by more than 50 per cent may help make the stock more attractive for growth-oriented investors, but the dividend appeal for long-time BCE shareholders has flatlined.
Let’s say you bought BCE three years ago at $68 per share. The dividend at that point was $3.68 on an annualized basis, which means a yield of 5.4 per cent. The just announced dividend cut will take the annual payout down to $1.75 per year from $3.99, which means a yield on the original $68 cost of the shares of 2.6 per cent.
With BCE now trading around $31.50, people who buy the stock today will get quite a decent yield of 5.6 per cent. But long-time shareholders have been hammered. A 2.6 per cent yield just doesn’t synch with the BCE investing experience right now. Dividend growth seems unlikely in the near to medium term, and the company can’t be counted on for dramatic share price growth. Globe investor pegged the average analyst rating on the stock in mid-May between hold and moderate sell.
So, what else to buy? For ideas, let’s look at big blue chips that have yields of 5 per cent or more and five-year dividend growth of at least 3.7 per cent, which is the average inflation rate over the past five years. Stocks on this list include Telus Corp. (T-T), Enbridge Inc. (ENB-T), Bank of Nova Scotia (BNS-T), Canadian Natural Resources (CNQ-T), Magna International (MG-T) and TC Energy (TRP-T).
Other big blue chips to cut their dividend in the past include TC Energy, when it was known as TransCanada Pipelines, as well as Telus, Manulife Financial and Algonquin Power and Utilities Corp. (AQN-T), which has twice lowered its payout in recent years. Telus, Manulife and TC Energy reinstated dividend growth, as BCE may well do in the future. Dividend investors, do you really want to wait?