RE:Well Balanced Analysis from Seeking Alpha 2024 is expected to be a trough year in earnings before the bottom line increases in 2025 and beyond.
Since BCE's big investment in upgrading its network to 5G is largely over, we can also expect free cash flow to decrease going forward.
Higher earnings combined with decreased capex is good news for free cash flow in 2025 and beyond, which in turn in excellent for the long-term viability of the dividend. Plus, BCE will enjoy the savings of its layoffs starting in 2025............
Slow growth combined with better control on the expense side and lower expected capital expenditures should be enough to improve BCE's payout ratio in 2025.
Let's also remember BCE has the financial might to fund this shortfall, at least through 2024. The company is expected to earn $3.20 per share in free cash flow in 2024 and pay $3.99 per share in dividends. That $0.79 per share shortfall translates into approximately $720M. The company had $5.8B in liquidity going into 2024. It can easily fund a short-term dividend shortfall.
The bottom line -- is BCE's dividend safe?
I'll get right to it. This analyst thinks BCE's dividend is safe.
BCE has the liquidity needed to get through these tough times. Although we never like to hear about thousands of layoffs, the reality is it's a positive move for the business. Combine that with the decrease in expected capital expenditures and BCE is poised to bring that payout ratio to the 100% range in 2025. It might even creep below 100% in 2025.
However, I'll throw out a small caveat. BCE cannot keep paying out more than its free cash flow in dividends. We all expect the trend to continue in 2024, however, if we don't see any improvement in 2025, then it'll be time to get concerned. BCE has the financial might to keep paying out more than it earns for a few more years, but the longer this goes on, the more risk increases.
As I write this, BCE yields a succulent 7.9%. Combine that with its relatively attractive valuation -- the stock trades at a reasonable 16x forward earnings -- and its position as the king of Canada's telecom market (by market cap, at least) and it combines to create an interesting investment opportunity. This analyst is long, and I recently purchased more.
JoeBravo1 wrote: Some may brush this off as a biased view from a newletter writer, but the report IMO, is well balanced by Nelson Smith who also happens to be a shareholder.
It takes into account both pros and cons, but he believes ultimately, BCE is a solid investment with a safe dividend and that 2024 is a pivotal year with 2025 to reap the benefits of the cost cutting and repositioning along with the payout ratio coming down considerably, and possibly below 100%. FWIW, the report was written March 12/24.
BCE a Balanced View, Good, Safe Dividend...