The rising interest rates and inflation we’ve seen in the past few years have taken their toll on the market and individual stocks. But there is one stock down 12% this year that might be worth looking into: BCE (TSX). Here’s why you should consider it now.
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Meet BCE, a Troubled but Promising Stock
Most Canadians are aware of BCE, one of the largest telecom stocks in Canada. The company has a massive network that spans the country, offering services like wireless, wireline, TV, and internet. Additionally, BCE has a significant media segment, including radio and TV stations, which provides an alternative revenue source.
Operating a telecom is costly, and BCE’s multi-year effort to roll out its fiber network has only added to expenses. Consequently, BCE’s debt skyrocketed from $18.7 billion to $39.5 billion over the past five years. Increased competition has also led to a “race to the bottom” in pricing, resulting in lower margins.
Things Are Changing at BCE
Management acknowledges the need for change. Earlier this year, BCE announced its largest restructuring program in decades. This included selling off 45 of its 103 regional radio stations and laying off 4,800 employees. These steps aim to transform the company into a more digital operation and reduce overall debt.
Recent asset sales, including a $4.7 billion stake in Maple Leaf Sports and Entertainment to Rogers Communications, signal positive changes. These efforts have already resulted in lower operating costs and a 52.1% increase in net earnings, totaling $604 million for the most recent quarter.
What About the Dividend?
BCE’s dividend is another critical factor for investors. Currently, it offers a remarkable 8.70% yield, making it one of the best-paying dividends in the market. Despite the stock’s 12% decline this year, BCE has maintained dividend payouts for over a century and has consistently increased them for over a decade.
However, the high yield stems partly from the stock’s current low price. BCE is now paying out more in dividends than it generates in free cash flow, which raises concerns unless viewed from a long-term perspective.
Long-Term Outlook
While BCE’s stock is down 12% now, it should be regarded as a long-term investment. The company has weathered multiple economic changes and is taking steps to improve its financial health. Its recent efforts are showing promise, and the dividend provides a solid incentive for investors.
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In my opinion, BCE is a great stock to buy now while it’s down, allowing you to enjoy that dividend and wait for the recovery to unfold.