BCE Inc.’s share price is up nearly 14 per cent since May, making it the latest example of a company whose stock rebounded after negative news.Christinne Muschi/The Canadian Press
Many of us embrace companies that pay attractive dividends and increase the payouts at least once a year. But should we pay more attention to companies that cut their dividends?
I know, the question sounds a bit crazy.
But with BCE Inc.’s BCE-T share price up nearly 14 per cent since May, when the Canadian telecom giant slashed its quarterly distribution by more than half, the stigma associated with the dividend cut is losing some of its edge.
And the interesting thing is, BCE is not an isolated example of a stock that has rebounded on bad news.
During the lockdowns in 2020, a number of Canadian companies cut their payouts to preserve cash during a particularly tumultuous time for the economy.
These companies included Laurentian Bank of Canada, Suncor Energy Inc., RioCan Real Estate Investment Trust, CAE Inc. and Gildan Activewear Inc.
But within a year, a portfolio of 10 Canadian stocks that slashed their payouts during the first half of 2020 had rebounded 56 per cent.
This performance beat the S&P/TSX Composite Index TXCX-I by a dazzling 30 percentage points over the same one-year period, not including dividends, according to numbers I compiled at the time.
The 10-stock portfolio even beat the S&P Dividend Aristocrats Index, TXDV-I which consists of stocks that have a history of raising their dividends every year, by 21 percentage points.
Dividend cuts, it seems, can mark a good time to buy stocks, not sell them.
Okay, there are plenty of caveats here. (Full disclosure: I own shares in BCE and RioCan, and – sheesh – remain underwater with both.)
For starters, the dividend cuts that occurred during the COVID-19 pandemic were specifically tied to the short-term consequences of lockdowns. They weren’t related to bad management decisions or shifting fundamentals of a struggling sector.
When the lockdowns ended, and the economy recovered, most distributions began to recover as well.
Second, the share prices of dividend-cutting companies bounced back from depressed lows. But that doesn’t mean investors benefited over the longer term.
Some stocks failed to recover to 2019 levels. Others recovered and then sank again.
Laurentian Bank continues to struggle. And RioCan’s unit price is still about 30 per cent below its pre-pandemic level, in December, 2019, even though the REIT raised its payout as recently as March, 2025.
Dividend cuts, in other words, don’t guarantee riches.
And the third caveat: Timing can be difficult to get right.
Algonquin Power & Utilities Corp. cut its dividend in January, 2023. It then cut it again in August, 2024. But the share price didn’t hit a low until later, in January, 2025.
Still, the bigger takeaway here is interesting: If a slashed dividend offers a clear signal that management has run out of financial options, it might signal that the worst is over for a diving stock.
Is the worst over for BCE?
The telecom still faces a large debt load, declining population growth and intense competition within the all-important smartphone business. But its most recent quarterly results, released in August, showed improving revenue and profit that beat analysts’ expectations, which is encouraging.
So perhaps BCE’s dividend cut earlier this year was the low point for the stock – or close to it – and a recovery has begun. We can only hope that a pattern is emerging.
What is your approach? Do you embrace bad news as a good buying opportunity? Or are dividend cuts a no-go zone? Send me your investing tips at dberman@globeandmail.com
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