BCE, Inc.’s recent financial struggles and questionable growth strategies are raising concerns about its ability to sustain dividends. With worsening cash flows and rising debt costs, BCE’s future looks increasingly uncertain for investors seeking stable returns.
BCE Inc. is a leading company providing a variety of wireless, wireline, Internet, and television services to residential, business, and wholesale customers across the US and Canada. Founded in 1880 and located in Verdun, Quebec, the company has a great history of being among the largest telecommunications providers in Canada.
A modern telecom center with a visually impressive array of satellite dishes.
BCE operates mainly under two segments: Bell Communication and Technology Services (Bell CTS) and Bell Media. The Bell CTS provides mobile voice and data services, high-speed Internet access, IPTV, cloud-based solutions, and satellite TV. In contrast, The Bell Media segment of BCE specializes in content creation across multiple platforms, including conventional TV, specialty channels, streaming services such as Crave, and radio broadcasting. The three major sources of revenue are subscription fees from these services, advertising revenue from media operations, and retail sales through consumer electronics outlets.
The customer base of BCE is quite broad, including mostly individuals seeking telecommunication services and enterprises in need of telecommunication systems. Consequently, the end market becomes more or less segmented and concentrated on all regions and sectors as well as both the cities and the countryside to ensure excellent provision of connectivity.
While BCE may have been known for its steady dividend growth, it looks like those days of consistent payouts could be over. The overall market is rising and the stock of the company has been dropping consistently since the start of the year. At a 10%+ yield, BCE’s dividends seem unsustainable given its poor cash flow performance. With its distributable cash flow unable to cover the dividend for nearly four years, the market is already pricing in a potential cut.
What makes matters worse for BCE is that it will only carry more debt. Although interest costs remain fairly low, the company’s latest debt placements come at a much higher rate than its average of 4.24%, ranging between 5.1% and 5.6%. This upward pressure on financing costs, coupled with rising bond yields and a tougher credit profile, may prove even more challenging for BCE to refinance its debt. Additionally, recent capital allocation decisions made by BCE seem questionable.
Thus, our bearish thesis is anchored by further erosion in BCE’s underlying cash flows, higher debt costs, very poor capital allocation, and the permanent risk of a dividend cut.
BCE Inc. does not rank on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held BCE at the end of the second quarter which was 18 in the previous quarter. While we acknowledge the potential of BCE as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as BCE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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