BCE (TSX:BCE)(NYSE:BCE) has been a top dividend stock on the TSX for years. But lately, it’s been the stock no one wants to buy. Shares of BCE are in a tailspin after the company announced it was pursuing an acquisition of a U.S. company and that in doing so, it would not increase its dividend next year.
The company is going to acquire Ziply Fiber, which has a strong presence in the Pacific Northwest and which is looking to get bigger. The move will allow BCE to add a growth catalyst to its otherwise stale business, which for years has generated just modest growth. Investors, however, don’t appear to be enthused with the strategy as shares of BCE have hit lows they haven’t been at in more than a decade.
Now, with the dividend yield of 10%, BCE seems like a stock which should be a red-hot buy. But investors appear to be extremely hesitant as a focus on growth while having a high payout ratio could make it a risky stock to own, especially if BCE’s next move is to reduce its dividend – that could happen if Ziply requires cash infusions to help grow its operations.
BCE stock is down more than 20% this year and while it’s still a top telecom provider in Canada, investors may be worried things will get worse before they get better.
If you’re a long-term investor, however, this can be a good time to take a chance on BCE given its low valuation and the pessimism which is priced into the stock. While it’s an uncertain time to invest in BCE, there could be a lot of upside in the future if the company’s growth strategy pays off. It’s not the safest of dividend stocks to be holding, but if you’re willing to be patient, it may be worth the risk.
