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BCE Inc.’s BCE-T dividend yield rose above 6 per cent this week, making the telecom stock hard to ignore. But the reason goes beyond the big payout: In this case, a high yield has often marked the start of a rally.

The stock, like much of the market, has been wallowing in misery for much of the past six months.

By Thursday, the price was down 19 per cent from its recent high in April amid continuing concerns about soaring inflation and rising interest rates, which have hammered telecom stocks in Canada and the United States.

As the stock price fell, the dividend yield rose from slightly below 5 per cent in April to a high of more than 6.3 per cent this week.

The current yield is now close to peaks seen over the past 10 years.

This oscillating yield can be used as a guideline for when to buy or sell this stock: Selling when the yield is unusually low and buying when it is high has generated compelling results over the following year.

Consider several examples over the past 10 years, using quarterly figures for the dividend yield.

When the yield was a lofty 6.1 per cent on Dec. 31, 2020 – in line with today’s yield – an investor who pounced on the stock was rewarded with a total return of about 28 per cent over the next 12 months. The return includes the big dividend distributions.

Similarly, buying the stock on Sept. 28, 2018, when the yield was 5.7 per cent, generated a one-year total return of 29 per cent. And buying the stock on June 28, 2013 – yielding an attractive 5.4 per cent – generated a return of 18.2 per cent.

Conversely, a low yield has often provided a strong incentive to get out of the stock, or at least avoid buying it.

An investor who bought BCE shares on June 30, 2016, when the yield was just 4.4 per cent – a low point for this stock over the past 10 years, based on quarterly figures – would have suffered through a one-year total return of nearly zero.

Again, that’s including dividends.

Buying the stock on Sept. 30, 2019, when the yield was 4.9 per cent – still at the low end of the historical range – was also a money-loser: The total return over the next 12 months was minus 8.8 per cent.

This intriguing pattern supports the case for the stock now that the yield is unusually high. But it is not the only reason to take a closer look.

Another reason: The mature telecommunications sector relies on population growth to expand its base of customers, and Canada is growing at an impressive clip.

This week, Statistics Canada reported that the country’s population increased by 284,982 or 0.7 per cent over the three months to July 1.

That’s the highest quarterly growth rate since the height of the baby boom in 1957, according to Statscan. International migration account for 94.5 per cent of the growth.

The increase dovetails with the rising number of smartphone customers.

Maher Yaghi, an analyst at Bank of Nova Scotia, said in a note to clients last month that the net number of wireless customers among publicly-listed Canadian service providers grew by 450,000 in the second quarter. That was the best second-quarter growth for numbers going back 15 years.

“The combination of a pickup in population growth versus recent trends and a more open economy are likely leading to a better uptake in wireless services,” Mr. Yaghi said in his note, referring to declining pandemic restrictions and population growth in the first quarter of the year, which was also strong.

“Both of these factors are likely to have a sustainable impact on loading” – or acquired customers – “in the next few quarters,” he said.

Will a deteriorating economy affect this upbeat outlook?

Telecom stocks are not immune to downturns. BCE’s net earnings fell 17 per cent in 2020, from the previous year, and the share price sank too.

But the company remained highly profitable during this tumultuous period. It kept paying its quarterly dividend and the number of retail wireless subscribers expanded by 2.6 per cent.

Smartphones are essential rather than discretionary, which makes a telecom stock, such as BCE, look like the right bet when economic clouds are moving in. The tumbling share price – and rising dividend yield – adds to the attractiveness.

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