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BCE Inc. Message Board

  • cozzi3838 cozzi3838 Aug 24, 2010 8:36 PM Flag

    BCE Is Still A Buy

    BCE Is Still A Buy
    Posted by Gordon Pape

    One of the Canadian stocks that has performed well in these dreary markets is BCE Inc. (BCE), the country’s largest telecommunications company.

    I originally recommended BCE to readers of The Canada Report newsletter on Dec. 17, 2008 when it was trading on the NYSE at $17.76. A multi-billion dollar privatization deal for the company had just fallen through and the share price had plunged to what I felt was an unrealistically low level.

    The call turned out to be spot on. BCE shares quickly rallied and the stock has steadily moved higher since, buoyed by four dividend increases along the way. The shares were trading on Tuesday morning at $31.45.

    I updated BCE in the August issue of The Canada Report following the release of the second-quarter results. Here are my comments:

    Good news all around from Canada’s largest telecommunications company. BCE reported a 70.5% increase in second-quarter earnings attributable to common shares, to $590 million ($0.78 a share) compared to $346 million ($0.45 per share) in the same period of 2009. Operating income increased 22% year-over-year, to just over $1 billion. (All currency in Canadian dollars.)
    Revenue from Bell Canada, BCE’s largest asset, increased 4.5%, buoyed by strong TV and wireless revenue growth of 11.6% and 9.6%, respectively. The inclusion of revenues from The Source (retail outlets) and Virgin Mobile Canada also contributed.

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    BCE passed on some of the gains to shareholders by announcing a 5% dividend increase to $1.83 annually. The next quarterly dividend, payable Oct. 15 to shareholders of record on Sept. 15, will be $0.4575 per share. This marks the fourth dividend increase since the bid to privatize the company collapsed in December 2008. The plunge in the share price that followed was the catalyst for my recommendation. At the time, the stock was trading near its 10-year low.

    Siim Vanaselja, BCE’s chief financial officer, said the dividend hike “is supported by our improved earnings outlook and maintains BCE’s payout ratio conservatively toward the low end of our policy range of 65% to 75% of increased adjusted EPS guidance for 2010. The dividend increase will also be readily funded from our free cash flow with no material impact on our projected cash balance for year-end 2010 of approximately $500 million.”

    Based on the recent price, BCE stock has a projected dividend yield of 5.5% over the next 12 months.

    Action now: Buy. This stock is suitable for conservative investors seeking above-average cash flow.

41.14+0.08(+0.19%)Jul 31 4:00 PMEDT