Here's Why We're Wary Of Buying BCE's (TSE:BCE) For Its Upcoming Dividend
TSE:BCE) stock is about to trade ex-dividend in four days. This means that investors who purchase shares on or after the 14th of September will not receive the dividend, which will be paid on the 15th of October.” data-reactid=”28″>BCE Inc. (TSE:BCE) stock is about to trade ex-dividend in four days. This means that investors who purchase shares on or after the 14th of September will not receive the dividend, which will be paid on the 15th of October.
BCE’s upcoming dividend is CA$0.83 a share, following on from the last 12 months, when the company distributed a total of CA$3.33 per share to shareholders. Based on the last year’s worth of payments, BCE stock has a trailing yield of around 5.9% on the current share price of CA$56.45. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether BCE has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for BCE ” data-reactid=”30″> See our latest analysis for BCE
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. BCE paid out 119% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.
It’s good to see that while BCE’s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we’d be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s not encouraging to see that BCE’s earnings are effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. BCE has delivered an average of 7.5% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Is BCE worth buying for its dividend? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Plus, BCE’s paying out a high percentage of its earnings and more than half its cash flow. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.
2 warning signs we’ve spotted with BCE (including 1 which is potentially serious).” data-reactid=”55″>With that in mind though, if the poor dividend characteristics of BCE don’t faze you, it’s worth being mindful of the risks involved with this business. To that end, you should learn about the 2 warning signs we’ve spotted with BCE (including 1 which is potentially serious).
a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.” data-reactid=”60″>We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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