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A Telecom Giant With a 5.4% Yield

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BCE: A Telecom Giant With a 5.4% Yield

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

BCE (NYSE: BCE) is Canada's largest telecom company, providing phone and internet services as well as creating content via several networks.

The company pays an attractive 5.4% yield on its American depositary receipts, or ADRs. (An ADR is very similar to a stock and is a way for investors to get exposure to foreign stocks.) Can shareholders expect to see that strong dividend in the future, or will management say, "Sorry, eh"?

Things aren't looking so hot for the company from the Great White North.

In 2024, free cash flow sunk to its lowest level in years.

Chart: BCE (NYSE: BCE)
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BCE's free cash flow is projected to grow starting in 2025, but Safety Net doesn't factor in estimates beyond the nearest forecast.

Once the calendar rolls over and 2026's estimate is included in the model, the stock could get an upgrade if projections suggest growth over 2025's figure.

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Not helping matters is that BCE paid out CA$3.8 billion in dividends last year while generating only CA$3.1 billion in free cash flow. That's a payout ratio of 123%. In other words, BCE paid shareholders $1.23 for every $1 in free cash flow. That's not sustainable.

Will it be more of the same moving forward? Or can shareholders expect the situation to improve?

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