There’s more than a few stellar dividend stocks on the market. One of those can even be labelled as a magnificent Canadian dividend stock.
Curious about that magnificent Canadian dividend stock?
Meet this stellar dividend stock down on its luck
That stock to buy and hold forever is BCE (TSX:BCE). BCE is one of the largest telecoms in Canada. The company offers core subscription-based services to its subscribers across the country.
Those services include wireless, wireline, internet and TV segments, all of which carry some defensive appeal. Additionally, BCE operates a large media segment that includes radio, TV, and print outlets across the country.
Despite that defensive appeal, BCE has struggled over the past few years, which has led the stock to a spectacular dip of nearly 40% over the trailing 12-month period.
Part of the reason for that drop can be traced back to the sharp rise in interest rates that we’ve seen over the past few years. Telecoms like BCE take on debt to fund capital projects such as infrastructure upgrades.
Even a small increase in interest rates can lead to significantly higher debt payments. For BCE, this means that the company was forced to scale down its capital efforts, while also paying more in debt.
While the stock price dropped, BCE’s quarterly dividend has soared. As of the time of writing, that dividend yield now sits at an insane 11.8%. Unfortunately, a stock-price-induced yield surge hardly makes this a magnificent Canadian dividend stock, at least yet.
How is BCE doing?
As a result of those issues, BCE was forced to take action. Last year, BCE announced some of its deepest layoffs in decades. BCE also shuttered some media outlets across the country as it shifted its focus to improving its digital business.
Turning to its lucrative dividend, BCE decided to suspend its annual uptick, at least until conditions improve. Incredibly, BCE hasn’t cut its dividend yet, despite some pundits believing it will come and even pricing in that cut.
The telecom also sold off its stake in MLSE, and in turn, purchased U.S.-based Ziply Fiber. The deal, which is expected to close later this year, will give BCE a firm footing in the still under-served U.S. fibre market.
But are those efforts working in turning around this magnificent Canadian dividend stock?
In a word, yes.
BCE announced results for the most recent quarter this week. In that quarter, BCE reported growth from its internet, business solutions and digital revenue segments by 3.3%, 18%, and 19%, respectively. BCE also saw its consolidated EBITDA margin increase to 43.4%, reflecting its highest annual margin in three decades.
Interestingly, BCE also reported capital expenditure savings of $66 million in the quarter, reflecting $684 million in savings for the full year. BCE is also slated to increase free cash flow to 19% in 2025.
Let’s talk about that dividend
One of the main reasons why investors flocked to BCE in the past was for its dividend. BCE is one of just a handful of companies that has been paying out dividends without fail for well over a century. And despite its current efforts to stem costs, BCE remains committed to its dividend.
Thanks to that inflated yield, investors with $25,000 can expect to generate an income just shy of $3,100. This not only makes BCE a magnificent dividend stock to own now but for the longer term as well.
While BCE has suspended its annual dividend increase, it has yet to slash its dividend. Prospective investors should note that even if that dividend is slashed in half, it will still be one of the best dividends on the market. Until then, investors can scoop up this magnificent Canadian dividend stock at a discount and wait for its recovery.
Is BCE the magnificent Canadian dividend stock for your portfolio?
BCE is an intriguing buy. The stock’s defensive moat is huge, and it still holds plenty of long-term potential for investors. Furthermore, the foray into the U.S. market from its Ziply Fiber deal will fuel significant growth of the stock.
In my opinion, despite its short-term struggles, BCE should be seen as a magnificent Canadian dividend stock to own in any well-diversified portfolio.