BCE’s Dividend Is Under the Microscope – Here’s What I See

By Joey Frenette at The Motley Fool Canada

Shares of BCE (TSX:BCE) may never be viewed the same by the many passive income investors who were surprised by the dividend cut a while back. And while the current yield is still relatively attractive, it’s definitely nothing to write home about, especially compared to some of the higher-yielders on the Canadian stock market today. At the time of this writing, shares yield a hair shy of 5%.

That’s still quite bountiful, even though its top peer in the telecom scene boasts a yield that’s closer to 8%. In any case, the stock seems to be finally looking up and perhaps even starting to put in a bit of a local bottom, with shares gaining just over 6% in the past year or 8% year to date.

Safe to get back in the BCE waters?

Undoubtedly, whether BCE stock has bottomed out for good, though, remains the big question. Personally, I think BCE stock remains one of the better dividend picks right here due to the rock-bottom valuation (5.2 times trailing price-to-earnings (P/E)) and potential for outsized dividend growth in the coming decade if things do go well with the turnaround plan.

So far, BCE seems to be steadily, albeit maybe a bit slowly, getting back on the right track. The dividend might be in better health today than before the cut, but the payout ratio may still be a tad on the high side for some, especially when you look at the free cash flow picture.

The good news, in my view, is that free cash flow looks well-positioned to inch higher from here, thanks in part to a potential slowdown in capital expenditures. Indeed, BCE and the rest of the telecoms have been spending quite aggressively on their infrastructure (think 5G wireless) in recent years. In any case, less capital spent, more cost savings, and steady growth (let’s say flat-to-single-digits) could spell good things for the future of BCE’s payout.

And while there’s still more spending, I do think that the network is in a good enough state such that firms like BCE won’t need to “floor it” when it comes to upgrades. Arguably, the market is gravitating towards networks that are “good enough.” And with an already-solid network in place, perhaps focusing on value and cost savings is the way to start winning again, especially as rivals look to undercut a bit on price.

BCE can achieve greater financial flexibility. That’s good news for the future of the dividend

Looking ahead, I think debt repayment will be a big priority, especially as the Bank of Canada signals a pause and potential pivot in response to the recent surge in oil prices. Of course, BCE might not be the same dividend star it used to be, but I think it can start all over again. In short, I think the dividend is sound, given where free cash flows could go in the coming 18 months.

As the firm prioritizes cost cuts and efficiency gains instead of spending as heavily on network upgrades (CapEx could focus on maintenance rather than aggressive expansions), I see BCE’s dividend as not just safe but having the potential to grow.

With Ziply having a path to grow south of the border, I’d say BCE may very well offer the best deal in the telecom scene for investors who want the perfect mix of appreciation, yield, and dividend growth. Of course, the dividend might not be flawless, but I do see upside as management’s new path forward looks to pay off in the form of greater financial flexibility and a better balance sheet.

The post BCE’s Dividend Is Under the Microscope – Here’s What I See appeared first on The Motley Fool Canada.

More reading

• Where to invest in a TFSA in 2026

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2026