Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor.
BCE is facing regulatory hurdles, but the company is improving its services while keeping its operating costs down. That should let it maintain its high dividend yield.
BCE INC. (Toronto symbol BCE; www.bce.ca ) is Canada’s largest provider of telephone services, with 5.0 million customers in Ontario and Quebec. It also has 2.2 million high-speed Internet customers and 2.3 million TV subscribers.
BCE also sells wireless services to 7.8 million customers across Canada, and its Bell Media segment owns CTV Television, specialty channels and radio stations.
The company recently offered to buy the 56% of Bell Aliant (Toronto symbol BA) that it doesn’t already own. Bell Aliant sells phone and Internet services to 2.3 million clients in Atlantic Canada and rural Ontario and Quebec. It also provides wireless services through an alliance with BCE.
BCE will pay $3.95 billion in cash and stock, but it will cap the cash portion at 25% of the purchase price. It expects to save $100 million a year by eliminating overlapping operations.
The deep value of dividend stocks
Pat McKeough puts a premium on safety in The Successful Investor. And BCE is a classic case of a stock whose high dividend and solid yield remain consistent through good markets and bad. Pat also seeks out hidden value in well-established dividend stocks. Like the real estate assets whose value Loblaw and Canadian Tire unlocked when it spun those assets into REITs. Or the undervalued assets of CP Rail that caused that stock to soar—over 70% in a year—when Pat made it his Canadian Stock of the Year.
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Canadian dividend stocks: BCE’s dividend currently yielding a high 5.2%
Over 90% of Bell Aliant shareholders have accepted the offer, so BCE can now force the rest to tender their shares.
BCE gave Bell Aliant shareholders three options: $31.00 in cash; 0.6371 of a BCE common share; or $7.75 in cash plus 0.4778 of a BCE share. Investors can defer capital gains taxes on the BCE shares they receive until they sell.
The company has prorated the all-cash option, so investors will receive $14.60 in cash plus 0.3370 of a BCE share. Investors who selected the all-stock or the default cash-and-stock option received their original choice without proration. The company aims to complete the purchase by October 31, 2014.
Meanwhile, BCE earned $640 million in the second quarter of 2014, up 7.7% from $594 million a year earlier. Per-share earnings rose 6.5%, to $0.82 from $0.77, on more shares outstanding. Revenue gained 4.4%, to $5.2 billion from $5.0 billion, on strong demand for wireless and the company’s Fibe TV service.
Buying full control of Bell Aliant should increase BCE’s earnings by 7.0%, to $3.20 a share in 2014 from $2.99 in 2013. The stock trades at 15.0 times that forecast. The $2.47 dividend yields 5.2%.
BCE is a buy recommendation of The Successful Investor.
Tomorrow our Investor Toolkit shows how investors can make the most of their charitable donations.
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