I hold a significant number of shares of BCE mostly for the income in a diversified portfolio.
I know in the past few weeks you have discussed the health of their dividend and don’t seem too concerned. To the contrary there are an increasingly large number of pundits who believe they cannot keep the pace of their present dividend and therefore must cut it. They talk about the various ways to measure it albeit as percentage of fcf or EBITDA or whatever but they just don’t have the fcf anymore due to these high capital expenditures sucking the life out of it.
Can you possibly dig into the math on this and give us the true picture? Maybe lower interest rates on the horizon will help with this problem? Or BCE goes the way of AQN, cuts their div and the stock drops like a rock? Been there done that with AQN and wondering if I should just reduce my holdings accordingly and find another way to make up the income.
Ok thanks a lot!
On an operating cash flow basis, BCE's payout ratio is not worrying at 46%. So it comes down to what it 'needs' to spend on elsewhere and how this can be financed. Some spending of course is not optional, but some is. The company has made plenty of acquisitions over the years and could slow its pace on these. It could sell assets. It still has the capacity to raise debt capital. It could always sell new shares as well. We truly believe it would do all of these things before it cut the dividend. A dividend cut would hurt the shares, and raise its overall cost of capital. BCE likely thinks it can find alternatives, IF it cannot finance its planned growth. It has already announced job cuts and cost cutting, and we think it is getting serious on this. It has of course been 'bloated' for decades, and there is likely a lot of fat that can be cut. It still had more than $3.5B in free cash flow last year after all capex. Bloomberg notes it has not had negative free cash flow since 2002. We think this is more of a popular media topic than an outright problem. Of course, no dividend is ever guaranteed.