I’ve accumulated nearly $1,700 of cash in my model portfolio. Now, it’s time to put some of that money to work.
If you’re lazy like me, the nice thing about dividend investing is that it’s largely a passive exercise. Once you buy the stocks, the dividends roll in every quarter – or every month in some cases. You don’t have to lift a finger.
To benefit from the magic of compounding, however, you do have to get off the couch once in a while to reinvest your dividends. True, you could enroll your shares in a dividend reinvestment plan to make the process automatic, but I prefer to reinvest my cash manually so I can take advantage of stocks that are attractively priced.
That brings us to today’s topic.
Shares of the two telecoms in my portfolio – Telus Corp. (T-T) and BCE Inc. (BCE-T) – have both suffered double-digit percentage drops from their highs last spring, as rising interest rates, inflation and recession fears have hobbled dividend stocks in general and telecoms in particular.
That’s the bad news. The good news is that their yields – which move in the opposite direction to their share prices – are now even more attractive. What’s more, with both stocks already reflecting the difficult economic backdrop, I suspect that the short-term downside from here could be limited. Longer-term, both companies stand to benefit from the rollout of 5G wireless technology and the growing adoption of fibre-optic internet.
For these reasons, and others I’ll discuss shortly, I’ve decided to purchase an additional 25 Telus shares and 15 BCE shares for my model Yield Hog Dividend Growth Portfolio . (These purchases were executed at Monday’s closing prices for a total of $1,638.25.)
The money in the model portfolio isn’t real, but – full disclosure – I also own both stocks personally. I’m also a customer of both companies; my family have four cellphones with Koodo, a Telus subsidiary, and we get our high-speed internet from Bell.
Fortunately, as our cellphone and internet bills rise – along with the price of everything else these days – my dividends from Telus and BCE are also growing steadily. If I’m going to send them a chunk of cash every month, I might as well get something in return.
Just this month, Telus hiked its payout for the second time this year as it reported strong subscriber, revenue and earnings growth for the third quarter. This continued a pattern of semi-annual dividend increases that stretches back more than a decade (with a brief pause in 2020 because of the pandemic). Telus currently yields about 4.8 per cent and is aiming to continue increasing its dividend at an annual rate of 7 to 10 per cent through the end of 2025.
Telus should have plenty of cash available to make good on its pledge. In a recent note, analyst Drew McReynolds of RBC Dominion Securities said the company expects free cash flow to roughly double to an estimated $2.6-billion in 2023. This reflects, in part, a drop in capital expenditures as the rollout of fibre-to-the-home is expected to reach up to 90 per cent of Telus’s targeted footprint by the end of 2022.
“Telus remains our best idea in Canadian telecom,” Mr. McReynolds said. He also cited solid growth in EBITDA (earnings before interest, taxes, depreciation and amortization) at subsidiaries Telus Health and Telus Agriculture & Consumer Goods, as well as the company’s ability to deleverage its balance sheet.
BCE is no slouch at dividend growth, either. In February, the company announced its 14th consecutive annual dividend increase of at least 5 per cent. Although BCE’s dividend is growing at a slower pace than Telus’s, BCE boasts a higher yield of about 5.9 per cent.
BCE is also coming off a strong third quarter, when it added more than 400,000 net new wireless and wireline subscribers, including more than 95,000 new fibre-to-the-home customers – up 33 per cent from a year earlier and its strongest fibre additions to date.
“We see a continued runway for growth as BCE gains share in recently fiberized regions and the company continues to drive 5G handset penetration and a migration to higher-value plans,” Stephanie Price, an analyst with CIBC World Markets, said in a note to clients.
I can’t tell you where Telus’s or BCE’s stock prices are heading in the short run. But I am confident that both companies will continue to reward shareholders with rising dividends and that, in the long run, their share prices will likely follow.
John Heinzl