Market Chatter: To Cut Or Not To Cut the Dividend? That is the Question for BCE
09:05 AM EST, 11/28/2024 (MT Newswires) -- BCE Inc.'s stock has long been valued by Canadian investors for its rich dividend and regular increases. But some institutional investors say the company should make the difficult decision to cut it -- by as much as half, The Globe and Mail is reporting. Last month, The Globe noted, BCE (BCE.TO, BCE) said that as part of its plans to acquire U.S.-based fibre internet provider Ziply Fiber, it was putting dividend hikes on hold at an annual payment of $3.99 for all of 2025, and instituting a dividend reinvestment plan (DRIP) to help fortify its balance sheet. The Globe's report noted the deal triggered a critical reaction among analysts, who said that the company would likely need to spend heavily for Ziply to build out its network. That, combined with the dividend pause, sent BCE's share price tumbling. Now, some investors say BCE needs to rethink its dividend strategy. The problem: BCE is distribu ting more cash than it is generating in free cash flow. BCE paid $910-million in cash dividends for common shareholders in the third quarter, exceeding the company's free cash flow of about $832-million. The company's per-share quarterly dividend of about $1 also exceeded its adjusted earnings per share of 75 cents in the quarter. Earlier this year, The Globe and Mail reported that the company's 2023 dividends were 162% of reported net income, the fourth straight year above 100% and the 11th straight year above 80%. The Globe report said a dividend cut would be unpopular. The market's displeasure with the pause to dividend-rate increases has remained clear: As of Wednesday, BCE's share price on the Toronto Stock Exchange was down nearly 30% year-to-date, with a near-record yield of 10.65%. A dividend cut could send the stock tumbling further. Nonetheless, 24 institutional investors surveyed by Veritas Investment Research overwhelmingly say the company should bite t he bullet. Of those surveyed, 83% said the company should reduce the dividend. More than half of those unnamed investors said the dividend should be reduced by at least 50%. |