A decline in BCE’s landline legacy home phone business has been more than offset by increases in its wireless, Fibe TV and internet divisions. Odlum Brown equity analyst Cory O’Krainetz outlines his reasons for making this high dividend tech stock a buy for capital gains and rising dividends.
Odlum Brown equity analyst Cory O’Krainetz is dialing up a “buy” recommendation for BCE Inc. (TSX─BCE) aka Ma Bell. He’s also handing it a price target of $61 a share. He writes:
BCE is Canada’s biggest telecom stock. Headquartered in the Montreal suburb of Verdun, BCE provides wire line, wireless, Internet and television to residential, business and wholesale customers.
Although its traditional phone business is declining, the decline is more than offset by growth in the company’s wireless, Fibe TV and Internet divisions. Overall, we expect BCE’s earnings to grow at a steady pace — one that will support annual increases in its dividend.
Three Canadian technology stocks dominate the market
Canada’s wireless sector is dominated by three big telecommunications stocks that together serve roughly 90 per cent of the market. Indeed, the federal government has so far failed to attract a fourth player, but not for lack of trying.
We think potential new entrants generally realize how hard it is to compete in Canada’s wireless market — one that’s well-established, but geographically diverse. And now that the Canadian government has auctioned off the 700 megahertz frequencies to existing service providers, it will likely become even more difficult for a newcomer to break in.
Admittedly, BCE’s legacy phone services have been a drag in recent years, although they still account for roughly 25 per cent of the company’s income. But we think the losses are manageable, considering that these customers are simply swapping wireless for wire line.
Moreover, BCE’s corporate accounts have been more stable than its residential ones — no small matter, considering that the former represents more than 40 per cent of the company’s customers.
For their part, BCE’s senior execs have done a good job over the past few years. Not only have they cut operating costs, but they seem to have given the company’s capital investments a lot of thought.
Must-have content helps make this a tech stock to buy
Then, too, we believe BCE enjoys a great opportunity to capitalize on its customers’ insatiable appetite for connectivity.
In addition, the company can augment its telecom business with exceptional media assets that include such must-haves as The Sports Network and HBO.
Given Canada’s low interest rates, investors have bid up many of its highest-yielding stocks. But BCE remains reasonably valued. As well, this high dividend tech stock offers one of the highest yields, along with the potential for regular dividend hikes.
Investor’s Digest of Canada, MPL Communications Inc.
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Investor's Digest of Canada •4/9/15 •