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The fixed-line phone business for telecoms is archaic, with the popularity of wireless devices encouraging consumers to save a few bucks and yank their old phones from the wall. (PHOTODISC)
The fixed-line phone business for telecoms is archaic, with the popularity of wireless devices encouraging consumers to save a few bucks and yank their old phones from the wall. (PHOTODISC)

Market Blog

Unless you want dividends, hang up on telecom stocks Add to ...

BCE Inc. is snapping up another asset, with its proposal to buy Astral Media Inc. for more than $3-billion. Sigh. The feeling seems to be that if telecom companies can’t get better, they might as well get bigger.

Don’t get me wrong: The dividends on many of these stocks are very attractive, with an average yield of 4.8 per cent, and the recent growth of those dividends has also been nice.

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Quarterly cash payouts, along with the economically stable nature of telecom, make these stocks glow during tumultuous times. BCE is no exception.

But things are looking up in the world: U.S. employment is turning around, the European sovereign-debt crisis has fallen off the front pages and stock markets are on a tear, with the S&P 500 at its highest level in nearly four years.

Is this the right time to play it safe?

Defensive stocks are great when they’re cheap and unloved, but you can’t say that about telecom right now. The five-member S&P/TSX telecom services subindex – which includes the likes of BCE, Telus Corp. and Rogers Communications Inc. – has risen 60 per cent from its 2009 low, putting it within shouting distance of its record high in 2007.

The shares trade at an average of 13.7-times earnings, which is no steal for a sluggish industry. Indeed, it’s hard to see where any significant share price gains are going to come from at this point, given that there isn’t a whole lot to get excited about in the area of Canadian telecommunications these days.

The underlying businesses are hardly inspirational. The fixed-line phone business is archaic, with the popularity of wireless devices encouraging consumers to save a few bucks and yank their old phones from the wall.

The wireless business is better, of course. But the Canadian landscape is becoming much more competitive and Ottawa is driven to make it even more so by enticing new players into the mix. Prices and profit margins are on their way down.

As for cable and television content, their glory years are fading fast: It is amazing the number of people you meet who are doing an end-run around cable and going with either bunny ears, rooftop antennae, or online services like Apple TV and Netflix – simply because new technology allows them to do so.

No, BCE, Rogers and Telus are not in trouble.

However, beyond dividends, they just don’t seem to have much to offer investors right now – and big-dollar acquisitions won’t change that view.

Follow on Twitter: @dberman_ROB

 
Security Price Change
BCE-T BCE Inc. 49.61 -0.21
-0.422 %
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