BCE Inc – A Cash Flow Machine That Belongs In Your Portfolio


BCE Inc (BCE) is Canada’s largest communications company providing communication solutions to residential, business and wholesale customers under the Bell Canada and Bell Aliant brands. BCE Inc is a well-diversified communications and media giant in the Canadian economy, part of the S&P/TSX 60 index. The company has a long history of rewarding shareholders and is committed to a dividend growth model and has confirmed that they intend to payout 65%-75% of free cash flow. However, the current EPS payout ratio remains high at over 90%. BCE cut its dividends in 2008 and started growing them aggressively since. While the current 5-yr dividend growth rate stands at 26.1%, the growth in dividends is expected to slow down to more manageable levels. The company has been focusing on strategically growing the wireless and media business segments and recently took Bell Aliant private in a $3.95B deal, which gives them a solid foothold in the Atlantic provinces.

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The Bright Future of Data Pipes

The rise of smart-devices has led to a tremendous growth in data over the last decade, but is expected to rise exponentially going forward. The push for smart devices including phones, tablets, wearables, cars and Internet-of-things has resulted in data moving to the cloud for better synchronization, storage and analysis. The common denominators that stand to benefit from the need for infrastructure support for communication includes cable,  internet and wireless service providers.

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BCE Inc (BCE) Dividend Increase

Another pay raise! BCE Inc (TSE: BCE) announced that it will be raising its dividends by 6.0% from an annual dividend of $2.33 to $2.47 effective BCE’s Q1 2014 dividend, payable on April 15, 2014. The record date is close of business day Mar 14, 2014. This is BCE’s 10th increase in the past 5 years. This dividend increase comes as a bit of surprise as BCE was originally expected to announce the dividend hike in March.
BCE’s dividend increase for 2014 comes supported by a higher expected free cash flow generation and a positive business outlook for 2014. The dividend increase maintains a dividend payout at the mid-point of a target policy of 65% to 75% of free cash flow.
As I pointed out in my analysis, BCE has been growing its media and entertainment sector by leaps and bounds with lots of acquisitions. My portfolio consists of 40 shares of BCE, which translates to a dividend raise from $93.20 to $98.80 annually. My yield-on-cost is now 5.62%.

Canadian Telecom Oligopoly Provides Sustainable Dividend Growth (BCE) (RCI) (TU)

The Canadian wireless market is dominated by The Big-3: BCE Inc (TSE: BCE, NYSE: BCE), Rogers Communications Inc (TSE: RCI.B, NYSE: RCI) and Telus (TSE: T, NYSE: TU) controlling approximately 91% of the wireless market, with various other regional players filling in the rest. The recent acquisitions by the Big-3 have allowed them them to expand into the media and entertainment business and provides the companies with diversified growth and income sources. These Big-3 are components of the S&P/TSX 60 index and have been providing stockholders with a constant flow of dividends and sustainable dividend growth.To read the full article, click here.


Canadian Wireless Market

The Big-3 Canadian wireless market players have been cash cows for a lot of investors over the years. The national market is carved up between three large players – BCE Inc (TSE: BCE), Rogers Communications Inc (TSE: RCI.B) and Telus (TSE: T) controlling approximately 91% of the wireless market, with various other regional players filling in the rest.

As a consumer, Canada is ranked among the ten most expensive countries for wireless services (Source: OECD Communications Outlook, 2013). The Canadian conservative government has been bipolar in trying to balance encouragement of competition and having a protectionist viewpoint roadblocking foreign ownership of local companies or downright blocking some from entering the market. Wind Mobile, a relatively new small player, has had a troubled past with foreign ownership (source) and national security concerns regarding deals with Huawei (source). Earlier this year, Verizon Communications Inc (NYSE: VZ) and AT&T (NYSE: T) decided not to enter the Canadian market after mulling on it for months (Verizon source, AT&T source).

In the upcoming 2014 wireless spectrum auction, all the roadblocks created have resulted in no new foreign telecom carriers planning on entering the market (source), which is bad news for the consumers – as the status quo results in continuation of the eye-gouging rates. However, the Big-3 are the big winners from the news.

The stats for the Big-3 are:

Company Name Ticker Quote P/E Yield Payout Ratio 5-yr DGR Debt/Equity
BCE Inc BCE  $44.51  14.22  5.23% 74.40% 16.74% 1.21
Rogers Comm Inc  RCI.B $45.36 12.49  3.84% 45.50% 14.40% 2.90
Telus Corp T $35.44 18.02  3.84% 66.30% 7.96% 0.95

Of the Big-3, BCE Inc is the most diversified. Click here to read about BCE’s profile when I initiated my position in July.

Disclosure: I am long BCE.

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.