GlobeinvestorGOLD -- Rob Carrick on BCECarrick is one of several favourites over at the Mop and Pail.
To save some of you time, Carrick reiterates several of the points that a number of forum participants have already raised. I would add that BCE's dog house status (due to the failed leveraged buy-out in 2008) will likely recede over the next year or so. Emphasis added below is mine. Enjoy. -TR
GlobeinvestorGOLD
The ABCs of BCE
Rob Carrick
07:14 EST Wednesday, Nov 11, 2009
Keep your eyes on BCE shares because they’ve been hovering at a significant level recently.
No, the shares aren’t blasting off or anything like that. They didmanage a nice little 5-per-cent run-up during the first week ofNovember, but their year-to-date gain of 7.4 per cent lags the broadermarket by, oh, about 20 percentage points. So what’s the big deal aboutBCE shares reaching $27? That’s price at which the company’s $1.62annualized dividend payment yields a juicy 6 per cent. Try finding thatin the world of guaranteed investment certificates, government orcorporate bonds, preferred shares or blue-chip common shares.
Yes, there is certainly some risk attached to BCE shares. Wirelessphone competition is heating up, and that could crimp profits. Don’tforget generalized market risk as well. If you own a dividend-payingcommon stock, you have to recognize the potential that unforeseendevelopments could cause a cut or suspension of the quarterly payout.But that said, BCE has to rank as one of the more conservative ways togenerate a 6-per-cent return from a stock.
In fact, the company has raised its dividend twice in 2009, to 40.5cents per quarter from 36.5 per cents. You know the company isconfident about being able to maintain that dividend because it alreadyhas a PR problem with investors who were angered when a deal to takethe company private at $42.75 per share fell apart last year.
The consensus analyst rating on BCE is a “buy,” with RBC CapitalMarkets among the firms who rate it a stronger “outperform.” RBC has12-month price target of $32 on the stock, which is based on what’sdescribed as the company’s stable operating platform, its improvingearnings outlook, the potential for modest share repurchases and thedividend yield. RBC is also projecting annual dividend growth around 5per cent.
Let’s face it – a dividend yield of 6 per cent is usually a warningsign for conservative investors to avoid a stock. But in BCE’s case,it’s an opportunity to earn yields without taking on the kind of riskthat will keep you up nights. Note: BCE shares look especially good innon-registered accounts, where the flow of dividends will benefit fromthe dividend tax credit.
P.S. GlobeinvestorGOLD is a subscription service. I use it primarily for the Wood-Gundy Canadian bond market data set. I use it secondarily for quick headlines and columnists like Rob Carrick. Thirdly for the PDF versions of the entire Globe and Mail edition. Your mileage may differ.