With a market value of C$23 billion and 2009 revenue of C$17.7 billion, BCE booked C$7 billion in earnings before interest, taxes, depreciation and amortization, C$1.46 billion of which was free cash flow available to pay dividends and repurchase shares. Earnings per share were up 11% to C$2.50 last year, and company guidance pegs EPS at C$2.65 to C$2.75 for 2010. By contrast, AT&T and Verizon are expected to have flat to slightly lower earnings.
Table: Strengthening Signals .As capital spending on wireless-network upgrades has peaked, and as wire-line-customer attrition seems to be stabilizing rather than accelerating, BCE expects free cash flow to rise to C$2 billion this year. This leaves ample flexibility for the company to keep raising its dividend -- which it did three times in 2009, for a total of 19% -- to the current annual C$1.74 a share, making for a 5.8% indicated yield. In addition to a stated focus on increasing its dividend, BCE's balance sheet allows it to buy back stock; it now has a C$500 million repurchase authorization. The shares could easily trade 10% higher over the next year, offering a high-teens-percentage total return.
Kathleen Anderson, co-manager of the BlackRock Equity Dividend Fund and lead manager of the BlackRock Utilities and Telecommunications Fund, calls this "the best of both worlds," a "shareholder-friendly" company that offers both income and good total-return potential.
My prediction is that within a year BCE will trade at least $42.50. I expect the dividend will increase by not less than 10% to $1.92 or more per share. As well, recognition of revenue growth, earnings growth, dividend growth, outstanding management, and new Canadian open door policy for foreign investment in telecom will decrease yield to 4.5% level.