Don’t Buy BCE Stock Until This Happens

Shares of the top Canadian telecom firms have continued to feel the pressure of tremendous industry headwinds. With BCE (TSX:BCE) reducing its payout a while back following an unfortunate dividend reduction, questions linger as to what the best telecom stock for your invested dollar is as we move through the midpoint of 2026.

Of course, there are telecoms that have kept their dividends intact through the past few years of selling pressure. So, given that, why bother with a name that chopped its dividend payout by just over half? I guess it all comes down to whether income investors want more clarity on the dividend path moving forward.

The case for watching BCE

Sometimes, it’s just better to have that band-aid ripped off in one go whenever a payout gets a bit stretched too far. Indeed, whenever a dividend commitment nears or even surpasses free cash flows coming in, a dividend reduction is often the best course of action.

It’s not just about realistic expectations when it comes to the dividend payout, though. Whenever industry headwinds are weighing, that extra cash could be better spent elsewhere, perhaps towards efforts to accelerate a turnaround. While BCE’s current dividend yield, just north of 5%, isn’t at all towering anymore, it is safe and sound.

The free cash flow payout ratio isn’t just in a comfortable spot, but I’d argue that there’s enough wiggle room to pave the way for generous dividend growth moving forward. Of course, growth and turnaround efforts ought to be a priority for a firm behind a stock that has imploded considerably off its highs.

Whether we’re talking about juicing the growth rate from dipping a toe into the U.S. fibre waters via acquisition or betting on AI efforts to save money and even jolt growth, I do think the BCE of the future will be in far better shape. The real question is whether all those income investors who sold following the big dividend reduction will be willing to give the name a second chance.

BCE stock looks cheap, but it might not be timely

At these depressed multiples, I think there’s plenty of reason to reconsider shares of BCE. At the time of this writing, shares go for 5 times trailing price-to-earnings (P/E). That kind of multiple screams “too good to be true.” But with the firm looking to the AI cloud for growth as well, I wouldn’t dismiss the telecom titan as a stealth AI infrastructure play.

Of course, there’s still a long way to go and a lot of money to spend. Between growing that dividend back and pursuing these intriguing growth opportunities, I’d be inclined to view the latter as the better move.

In any case, tough competition in the wireless scene and a lack of momentum might be reasons to stay out of BCE. And while I wouldn’t be in a rush to buy at $34 per share or so, even with the compelling valuation multiple, I do think that I’d much rather be a buyer of the name on the way up than the way down.

Here’s when I’d look to buy BCE shares

Specifically, I want to see BCE stock break through a ceiling of resistance at around the $35–36 per-share mark. It seems like every time BCE tests the level, it ends up pulling back. Whether or not the latest run-up leads to the same is the big question.

Either way, I want to see the name sustain a run past the ceiling before seriously considering buying. In short, it’s a less timely stock, but a worthy one to watch, especially on a breakout.

The post Don’t Buy BCE Stock Until This Happens appeared first on The Motley Fool Canada.

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More reading

• 2 Defensive Canadian Stocks I’d Buy as Recession Fears Rise
• Transform Your TFSA Into a Money-Making Machine With Just $10,000
• This Dividend Stock Has Fallen 55% — and I’d Still Back It as a Long-Term Hold
• BCE or Telus: Which TSX Dividend Stock Is a Better Buy Now?
• What’s the Deal With Telus’s Dividend?

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.