The Stock I’d Pick Over Telus or BCE and Why I Keep Coming Back to It

Canada’s telecoms are often considered among the best long-term defensive investments on the market. They are also known for offering some of the best yields on the market. That includes both Telus (TSX:T) and BCE (TSX:BCE). But when it comes to picking Telus or BCE, there’s another stock that I prefer right now.

As of the time of writing, both Telus and BCE offer yields of 10.7% and 5.4%, respectively. That alone can make them hard for income investors to ignore. But those big yields don’t always translate into a better or safer income.

Why Telus or BCE may look tempting

Telus and BCE are easy stocks to understand. Both operate essential telecom services to subscribers across Canada. And irrespective of how the market is moving, Canadians still need wireless, internet, and communication services.

In fact, the defensive appeal of those services has only grown in recent years, and that’s part of the reason why the big telecoms have remained popular. Investors have historically viewed telecoms as steady payers with recurring revenue, large customer bases, and a defensive moat.

The problem is that telecoms are capital-intensive. They are constantly spending on networks, spectrum, fibre, and wireless infrastructure. That spending puts pressure on the companies’ bottom line.

That pressure is amplified when interest rates remain elevated or market volatility hits.

Neither Telus or BCE are immune to that, and both have moved to slash costs. BCE suspended its dividend growth and slashed the payout, while also announcing deep cuts.

Telus also suspended its dividend growth but stopped short of cutting its dividend. That’s part of the reason why Telus’ dividend is in double-digit territory.

Neither Telus or BCE is without risk. That’s led me to consider another option that I keep coming back to.

Why Fortis keeps standing out

Fortis (TSX:FTS) is a different kind of dividend stock. The company is one of the largest utility stocks in North America. Fortis’ portfolio includes regulated utility assets across Canada, the United States, and the Caribbean.

That may not sound exciting, but it generates a recurring, predictable revenue stream that leaves room for growth investments and a generous quarterly dividend.

Utilities like Fortis aren’t usually built for explosive growth. They’re designed to cater to steady demand, provide regulated returns, and benefit from long-term capital plans.

Customers need electricity and gas services in both good economies and bad ones. That gives Fortis a level of defensive predictability that’s hard to ignore. Even with their own defensive appeal, Telus or BCE simply can’t match the defensive moat that Fortis commands.

Turning to income, Fortis offers investors a quarterly dividend that carries a yield of 3.1%. That’s not the highest yield on the market, but it is stable, well-covered, and growing.

In fact, Fortis has provided investors with annual dividend increases for over 50 consecutive years without fail.

Fortis, Telus or BCE? Here’s my pick

Investors looking to choose between Fortis, Telus, or BCE need to evaluate the trade-off between income today and longer-term stability.

Telus offers the largest upfront yield. BCE still offers a higher yield than Fortis, even after its dividend reset. For investors seeking current income with an appetite for risk, the telecoms may have a role in a portfolio.

Fortis offers less income upfront, but investors get a steadier business model in exchange. That can be valuable for investors building a long-term dividend portfolio around consistency rather than headline yield.

If I had to pick one stock today over Telus or BCE, I would pick Fortis.

The post The Stock I’d Pick Over Telus or BCE and Why I Keep Coming Back to It appeared first on The Motley Fool Canada.

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More reading

• 2 Canadian Stocks Built to Be TFSA Cornerstones Through a Volatile Market
• How Big Should Your TFSA Be Before You Can Retire?
• Everything Investors Should Understand About BCE’s Dividend Right Now
• Is TELUS Stock Worth Buying at Its Current Price?
• RRSP Investors: 3 TSX Dividend Stocks to Own for Decades

Fool contributor Demetris Afxentiou has positions in Fortis. The Motley Fool recommends Fortis and TELUS. The Motley Fool has a disclosure policy.