Q: Hi, BCE shares have been hammered for past few weeks with stock making new 52 weeks lows everyday, with market fearing that company could cut or not be able to keep pace with dividend increases, due to pressure on its cash flow. Company has a large debt load and yesterday the Rating Agency placed BCE on a negative watch, which makes it more expensive for BCE to borrow. Pay out ratio is already over 100% of its earnings. Current dividend yield of 8.5% could be viewed as flashing warning signals.
BCE is held in 5i Income Portfolio and generally rated well, per your recent comments. Are you still comfortable to hold it in Income Portfolio ? Also, if income is not the primary objective for an investor, is it not prudent to liquidate even at current price and move on to other opportunities with lower dividend and better growth?
Thank You
BCE is held in 5i Income Portfolio and generally rated well, per your recent comments. Are you still comfortable to hold it in Income Portfolio ? Also, if income is not the primary objective for an investor, is it not prudent to liquidate even at current price and move on to other opportunities with lower dividend and better growth?
Thank You
5i Research Answer:
We remain comfortable. It is not risk-free, but the company is taking steps to cut costs, and on a cash flow basis the payout ratio is much better. It has noted that dividend growth may slow, but we would be quite surprised at a cut. It seems to be the most popular media topic these days. Lower rates should help the overall picture. The valuation in our view properly reflects the risks. Certainly though we would not consider it a growth stock, and growth oriented investors could certainly see better opportunities elsewhere.