2 weeks ago, I was presented the Telus Stock Analysis. I obviously told you how this company is great since I bought it a few months ago ;-). But Michel asked me what I thought of BCE and forced me to tell him that I would compare Telus to Bell (BCE). Well this is the day! I’ll be telling you why Telus is a much better investment then BCE at the moment.
But first, let’s start with BCE metrics :
Ticker BCE
Name BCE Inc
Dividend Metrics
Current Dividend Yield 5.33
5 year Dividend Growth 5.01
1 year Dividend Growth 13.04
Company Metrics
Sales Growth (1 year) 1.88
Sales Growth (5 year) 0.57
Earnings growth 15.04
P/E ratio 13.05
Margins growth N/A
Payout ratio 62.45
Return on Equity 15.12
Debt to Capital Ratio 0.45
There is also further information about Bell at BCE stock analysis at Canadian Dividend Stock
Don’t be fooled by the dividend yield
If you look at the current dividend yield for both companies, Telus is no match at the moment :
5.21% for BCE vs 4.27% for Telus.
And if you dig a little bit further and check out their dividend payout ratio, you won’t see much difference either. Both companies stay around 60%. So buying shares of BCE for its dividend seem to be the logical choice, right?
Think again!
If you look at the past 5 years, Telus has been increasing its dividend by 16% annually while BCE is showing a skinny 5%. In addition to that, Telus has the intention of increasing its dividend by 10% in 2012 and 2013. So in 2 years, T will have a similar dividend to BCE. When we look at BCE, they have no clear intention to raise their dividend in the upcoming years. We could assume that they will increase their dividend but can they really afford it? Here comes my second point…
Look at the revenue streams
As mentioned in my previous analysis, Telus is getting about 50% of its income from its wireless activities and the other 50% from wireline activities. This is far from being the case for BCE. In fact, BCE has only 25% of its revenue coming from wireless and 75% coming from a declining business model (wireline).
Each year, BCE is losing market share (and revenue) from its wireline activities. Strong local competitors such as Videotron have entered the wireline industry and now offer combos with internet, landlines, cable and mobile phone service. Since its a mature market with more competitors, it only means less profit from this activity.
On the opposite hand, Telus seems to be in a much better position to benefit from the growth of the mobile market. Remember that the penetration rate in Canada for mobile phone users is 80% as compared to over 100% for some European countries.
Telus has moved towards the wireless industry much faster and with more success than Bell. Since this is where growth will be generated for telecoms in the upcoming years. My guess is that Bell dividends won’t be increased too much. Or they will do it by incurring a higher dividend payout ratio than Telus at some point.
Combativity or old Monopoly?
There is one thing that really bugs me about BCE. It’s more personal and less rational. But still, it’s a fact. Bell used to have a monopoly in Quebec. This means that they used to own all landline business. What happens when a company has a monopoly? It sits on it and become lazy.
Even though the market has changed and BCE is not a monopoly anymore, I still have the feeling that the roots of the company are still leaking this poison. They seem slower to react and don’t show innovation as other telecoms do. I’ve seen some great improvement from BCE in the past recent years but the traces of the monopoly are still there. This could eventually cost them more than a few points of their wireline market share!
Final Thoughts on Telus & BCE
Telus is a smaller and more active company. BCE is a stable dividend payer. If you are looking for dividend growth combined with capital growth, I think Telus should be your choice. On the other hand, if all that matters to you is a stable stock with a stable dividend, BCE is definitely a great option over the next 5 years. So BCE is a great stock to pick… but I just prefer Telus for a few reasons ;-).
Disclaimer: a own shares of Telus (T)
There is a lot for me to take issue with in your comments.
“If you look at the past 5 years, Telus has been increasing its dividend by 16% annually while BCE is showing a skinny 5%. In addition to that, Telus has the intention of increasing its dividend by 10% in 2012 and 2013. So in 2 years, T will have a similar dividend to BCE. When we look at BCE, they have no clear intention to raise their dividend in the upcoming years. We could assume that they will increase their dividend but can they really afford it?”
– BCE’s dividend is currently 2.07 annually. Compared to 2006, when the dividend was 1.32 annually, that is 57% titak dividend growth. While TELUS has grown its dividend faster over the last 5 years, it is not accurate to declare BCE’s dividend growth as ‘skinny’.
– While TELUS has grown its dividend faster over the last 5 years, looking to this indicator may not yield you very much insight. 5 years ago, TELUS’s dividend yield was very low and the company was still in a growth phase, reinvesting its profits in future growth rather than paying shareholders in the form of dividends. Therefore, the reason for faster dividend growth is not necessarily because of faster company growth, but moreso a function of a greater payout ratio currently than the company has adhered to in the past.
– TELUS has announced and is on track to increase its dividend 10% a year until 2013, and we are halfway there given it is almost 2012 and this plan was announced for the 2011 year. BCE increased its dividend in December 2010, in early 2011 after it acquired CTV, and will likely announce its dividend increase for 2012 in December 2011. It is very likely this dividend increase will be in or around the ~10% range.
“Telus is getting about 50% of its income from its wireless activities and the other 50% from wireline activities. This is far from being the case for BCE. In fact, BCE has only 25% of its revenue coming from wireless and 75% coming from a declining business model (wireline).”
– The remainder of BCE’s business is not just wireline, but is also made up of media assets, which are currently showing strong growth as the economy recovers.
“Each year, BCE is losing market share (and revenue) from its wireline activities. Strong local competitors such as Videotron have entered the wireline industry and now offer combos with internet, landlines, cable and mobile phone service. Since its a mature market with more competitors, it only means less profit from this activity.”
– TELUS faces the same issue with Shaw as BCE faces with Videotron in Quebec, and Rogers in Ontario. TELUS loses traditional custoemrs just as BCE loses traditional customers. Where TELUS had made headway is that they have successfully rolled out IPTV in urban markets. BCE is about a year or two behind TELUS with its IPTV rollout and will thus feel similar benefits to TELUS 1-2 years after TELUS feels them. Both the companies are in a similar position.
“Telus seems to be in a much better position to benefit from the growth of the mobile market. Remember that the penetration rate in Canada for mobile phone users is 80% as compared to over 100% for some European countries.”
– BCE is a bigger wireless company than TELUS, though it is true as you previously stated a greater proportion of TELUS’s profitability is derived from wireless. In western Canada, where TELUS has high market share, penetration rates are the highest in the country in some cases as high as 95%. In Quebec, the penetration rate is close to 60%, which bodes well for future growth for companies focusing on this region. It is also not fair to imply that penetration rates in Canada will exceed 100% as it does in Europe given structural differences in pricing plans that in some cases make it cheaper in Europe to own phones from multiple providers than to own a single wireless device.
“Telus has moved towards the wireless industry much faster and with more success than Bell. Since this is where growth will be generated for telecoms in the upcoming years. My guess is that Bell dividends won’t be increased too much. Or they will do it by incurring a higher dividend payout ratio than Telus at some point.”
– I don’t like taking financial advice from ‘guessing’. To my previous point, Bell is a bigger wireless company than TELUS, so it is unfair to say that ‘Telus has moved towards the wireless industry much faster and with more success than Bell’. In fact, Bell is a bigger wireless company, it is just a bigger wireline company as well and that is why TELUS derives more profitability from wireless than Bell. There is nothing tangible here to support your claim that ‘Bell dividends won’t be increased too much.’
“There is one thing that really bugs me about BCE. It’s more personal and less rational. But still, it’s a fact. Bell used to have a monopoly in Quebec. This means that they used to own all landline business. What happens when a company has a monopoly? It sits on it and become lazy. Even though the market has changed and BCE is not a monopoly anymore, I still have the feeling that the roots of the company are still leaking this poison. They seem slower to react and don’t show innovation as other telecoms do. I’ve seen some great improvement from BCE in the past recent years but the traces of the monopoly are still there. This could eventually cost them more than a few points of their wireline market share!”
– This is my biggest gripe because it clearly shows you do not have an accurate understanding of the history of the companies you are trying to make a point about. TELUS is a former Bell operating company. TELUS used to be a monopoly as Bell did. So why would you say Bell is not innovative but not put TELUS in the same category? Further, I would take issue with saying that these former monopolistic companies do not show innovation as other telecoms do – what other telecoms are you referring to? Rogers? Manitoba Tel? Videotron? I don’t see anything tangible to support your claim.
Bottom line: Both companies are very large, very stable, solid dividend paying stocks and because they are so similar they will yield similar returns in coming years.
What’s your thoughts on Rogers compared to them?
What about BCE buying up CTV?
Will that not contribute to the bottom line?
Just checked out my BCE holdings. Purchased from $28 – $38
Looking for it to fall back some to buy some more. Its hard to argue with over $10,000 in dividends per year.
I know no guarantee on stock price or dividends but no disappointments so far.
Best one(and only one) in my TFSA so far. For $15K it is worth over 19K right now. Use the dividends to pay down the HELOC and pump them back in in the new year. Beats GIC’s by a mile. Considering my year one of TFSA was a lousy GIC the TFSA is up well over 20%.
Again no guarantees but the dividends are being put to good use.
Will Telus outflank BCE. Maybe, maybe not. Still nothing like dividend paying blue chips.
Well said Richard, same entry points as me!
I will eventually own T, just not right now. Too pricy.
Great post TDG!
Cheers,
Mark
Thanks for the post Mike. Notwithstanding Matt’s comments, you were able to show the main differences between the two stocks. I think a combination of both would be great in any dividend paying stock portfolio.
p.s. I just read your e-book and it’s excellent!
Woohoo! My first “controversial” posts ;-). I never thought to have that on my dividend blog, it’s cool!
@Matt,
Thx for your points, I think you are bringing another perception on BCE vs Telus. While I might be biased (I really don’t like BCE as a customer), I still think that Telus will do better in the future. Not that BCE won’t be good, just that Telus will outperform the telecom sector.
BCE main market is central Canada (Ontario and Quebec) while Telus castle is based in western Canada. BCE is losing market shares in the wireline indutry but Telus is actually gainaing market shares on Shaw’s back at the moment. This is also why Shaw decided to stop it’s expansion in Western Canada at the moment (Thx to one of my reader’s comment on Telus stock analysis).
I think that Telus is more “innovative” in a sense that they quickly moved to the wireless business while BCE is still slow on getting on board (they recently (in 2009) acquired a sufficient technology to compete against Rogers in the wireless market in central Canada). I was talking to a BCE VP 2 years ago and was confirming my perception on Bell; they are still slow to move as they have a few monopoly reflexes still in places.
Most financial analysts I read forecast a dividend raise of 5% for BCE while Telus has clearly announced a 10% increase. After the recent CTV purchase, the debt level will slightly to up and will surely restrain BCE to increase its dividend at the same level as Telus does. Nonetheless, BCE is still a pretty good bet with a 5% dividend!
Thx again for your comments!
Mike.
@ Mike
“I think that Telus is more “innovative” in a sense that they quickly moved to the wireless business while BCE is still slow on getting on board (they recently (in 2009) acquired a sufficient technology to compete against Rogers in the wireless market in central Canada). I was talking to a BCE VP 2 years ago and was confirming my perception on Bell; they are still slow to move as they have a few monopoly reflexes still in places.”
– This is like the history comment you made. TELUS and BCE actually have the same wireless network, and share the costs. They built the CDMA network together, which despite being an arguably “better” technology lost out to GSM as the worldwide standard and therefore did not have first access to new phones, which allowed Rogers to take the lead in the marketplace. They now have their HSPA network together. So it’s inaccurate to insinuate based on this that Bell is slower to adopt new, innovative technologies.
“BCE main market is central Canada (Ontario and Quebec) while Telus castle is based in western Canada. BCE is losing market shares in the wireline indutry but Telus is actually gainaing market shares on Shaw’s back at the moment. This is also why Shaw decided to stop it’s expansion in Western Canada at the moment”
– BCE and TELUS are in the same boat in their respective regions. TELUS continues to lose customers to Shaw on the home phone side, while its launch of IPTV has spurred on new TV customer additions, supported Internet subscriber growth, and improved the overall rate of decline. Similarly, Bell is losing customers to Rogers/Videotron on the home phone side, and is rolling out IPTV in its operating territories now, and will probably start marketing it hard in 2012 – so BCE next year will be in the exact same position TELUS is in currently, with Rogers and Videotron getting hit like Shaw is now.
“Most financial analysts I read forecast a dividend raise of 5% for BCE while Telus has clearly announced a 10% increase. After the recent CTV purchase, the debt level will slightly to up and will surely restrain BCE to increase its dividend at the same level as Telus does. Nonetheless, BCE is still a pretty good bet with a 5% dividend!”
– BCE’s debt level is of no concern. I don’t think it is quite fair to say consensus analyst forecasts are for 5% dividend growth at BCE and 10% for TELUS, I think they’re actually pretty similar, but we can agree to disagree on that. Nonetheless, let’s say TELUS raises its dividend slightly faster than BCE over the next few years. Currently you’re getting a yield north of 5% on BCE, vs TELUS at just north of 4%. If they were currently yielding similarly, then you could argue TELUS is a better bet for dividends, but you still currently get more with BCE and will for the next couple of years.
Again, the bottom line for me is: both companies are very large, very stable, solid dividend paying stocks and because they are so similar they will yield similar returns in coming years.