Solid Income From a Telecom Giant

BCE - Bell Canada
BCE Inc. or Bell Canada Enterprises is Canada’s largest telecommunication company. The company provides industry leading broadband communications services to more than 22 million customers across the country.

The company owns Canada’s largest network of data centres, retail outlets, as well as Bell LTE, Canada’s national network. BCE is a leading residential communications provider offering fibre-based Fibe TV and Fibe Internet, Connected Home services and home phones in seven provinces. It also provides national wireless services, and a wide range of business communications services including data hosting and cloud computing across the country. Moreover, its multimedia company, Bell Media is Canada’s premier media company hosting the No.1 sports channel TSN.

The company operates through Bell Wireline (53% of Q318 revenues), Bell Wireless (36%) and Bell Media (11%). By products, wireline broadband & TV accounts for 36% of revenues, followed by wireless (36%), wireline voice (17%), and media (11%).

Bell Canada caters to a diversified customer base which includes retail consumers, businesses and government customers. It provides an extensive range of products and solutions for all their communication needs.

Investment Data

Revenue Growth & Market Exposure

BCE’s services include Bell Mobility, Virgin Mobile and Lucky Mobile wireless, high-speed Internet, IPTV and Satellite TV, Home Phone local and long distance, as well as IP-broadband connectivity services and business service solutions.

BCE has a huge footprint with its LTE wireless coverage reaching out to 99% of the Canadian population. The company has a long track record of of providing reliable wireless services. Bell’s fibre footprint reaches to more than 9 million locations including direct fibre to the premises (FTTP) capability for more than 3.7 million homes and businesses.

BCE is rapidly expanding its Canadian broadband fibre and wireless network infrastructure, and is incurring annual capital investments of over $4 billion.

Customers recognize Bell Canada for its fast internet speeds and large network footprint. With more than a century in business, Bell Canada is known for its strong business communications expertise and networks that are unrivalled in the industry.

BCE Inc. is strategically well positioned across all product lines and is a market leader in Internet and TV. Growing demand for data and communication infrastructure should act as a tailwind for the company. Bell Canada’s wireless segment is a fast growing, high margin business. The roll out of Bell’s all-fibre internet network will ensure gigabit internet speeds, home Wi-Fi, and innovative TV services, which will support in retaining its customer base.

Bell Canada successfully drove its broadband growth with net additions, up 41.5% in the last quarter. The company is targeting a revenue growth of 2%-4% for 2018, and is on track achieving it so far.

Dividends

Bell Canada is a Dividend Aristocrat raising its dividends by more than 100% over the last nine years. It currently sports a dividend yield of 5.6%. The company has a solid history of giving high returns to shareholders. The company last raised its dividend by more than 5%. BCE has raised its payout by 5% or more for the 11th consecutive time this year. The company has maintained a dividend CAGR of 7% over the last decade.

Strong wireless and residential wireline operations and market leading media assets generate strong and reliable cash flow. The company generates large free cash flows to maintain both capital investment and shareholder returns. Bell Canada has a target dividend payout ratio of 65% – 75% of free cash flow.

BCE’s wireless business generates approximately 50% of its cash flow and is growing at a fast pace across Canada. The company also spends hundreds of millions of dollars on its wireless network annually to improve its performance and coverage. Ownership of Canada’s most advanced fibre and wireless networks is its biggest advantage. Telecom and communications business is highly capital-intensive in nature. Scale and high subscriber acquisition costs act as entry barriers for newcomers.

BCE should continue to increase its dividend in the mid single digit range, driven by a growth in wireless subscriber base and an expanding direct fibre service footprint.

Competition

Bell Canada commands approximately 30% share of the Canadian telecom market. However, the company faces competition from the likes of Rogers Communications TSE:RCI.B and Telus TSE:T as well as new entrant Shaw Communications TSE:SJR.B.

Rogers Communications is the second largest telecom company in Canada with Telus following closely behind. Other smaller competitors include Shaw Communication and Cogeco Inc. Shaw is amongst the large providers of residential communication services in Canada. Cogeco Inc .provides cable TV, telephone, and Internet to customers in Ontario, Quebec, and some parts of the US.

The competition is fierce and the wireless providers use bundles to entice customers and lean on their fast internet delivery to home to entice bundling multiple packages. Most of the providers offer 2-year contracts and customers flock between companies based on the savings. Retention is a key challenge the companies have to deal with.

Bottom Line

BCE’s large broadband network investments, ongoing service improvement and efficient operations should help in retaining its leadership position. The company has been growing its internet and IPTV net subscribers year-on-year, while at the same time making investments in rolling out Canada’s next-generation communications infrastructure. Bell Canada’s continuous investment in wireless technologies and solutions further safeguards the company from the threat of a decline in the wireline business. Stable cash flows should support a growing dividend stream in the coming years.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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