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BCE Inc. (TSX:BCE), a prominent name among TSX communication stocks, has seen a significant decline, down 24% over the past year. This steep pullback has contrarian investors wondering if BCE stock is now undervalued and a good buy for a self-directed Tax-Free Savings Account (TFSA) targeting passive income or a Registered Retirement Savings Plan (RRSP) focused on high-yield dividend stocks.
BCE Stock Price
Currently trading at around $46.50, BCE (TSX:BCE) hit a 10-year low of about $44 in April, well off its peak of $74 in 2022. The decline has largely been driven by rising interest rates, which have increased borrowing costs for BCE, cutting into profits and the cash available for dividends or share buybacks.
Interest Rates and Financial Impact
BCE spends billions annually on network upgrades to ensure its customers have the wireless and wireline broadband capacity they need. These projects are partly funded through debt or credit lines, and the recent jump in interest rates has significantly increased BCE’s borrowing costs. The Bank of Canada is expected to start cutting interest rates as early as this month, potentially providing relief for BCE and making its stock more attractive to investors.
Operational Challenges
BCE has faced some operational challenges, particularly in its media group, which has seen falling revenue. In response, BCE has announced job cuts totaling around 6,000 positions over the past year and has closed or sold several radio stations while scaling back television programming. However, digital revenues in the media group are rising, and first-quarter revenue for the media division was higher year-over-year for the first time since 2022.
Financial Guidance and Upside Potential
For 2024, BCE’s financial guidance indicates relatively flat or slightly higher revenue compared to last year, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) expected to rise by up to 4.5%. BCE also increased its dividend by 3.1% for 2024, suggesting confidence in its revenue and earnings outlook despite current headwinds.
Dividend Safety
BCE’s dividend yield currently stands at 8.5%. While high yields can signal potential cuts, BCE’s strong balance sheet and cost reductions, including headcount reductions, should help maintain the dividend. Additionally, a potential decline in borrowing costs could provide further support in 2025 and beyond. BCE’s revenue from essential mobile and internet service subscriptions provides some protection against economic downturns.
The Bottom Line on BCE Stock
While additional downside is possible in the near term, particularly if the broader market pulls back or interest rates remain high, much of the bad news appears to be priced into BCE stock at this level. For long-term, buy-and-hold investors focused on high-yield dividend stocks, BCE offers an attractive opportunity. The steady financial guidance and strong dividend yield suggest the stock is oversold, providing confidence in the sustainability of the dividend.
