BCE: Stock & Dividend Analysis

Good lord are Canadian telecom stocks cheap. Yowza.

They’re cheap for a reason, as most stocks usually are. The sector is dealing with a multitude of factors today, including:

Both Telus (TSX:T) and BCE (TSX:BCE) are down more than 50% versus all-time highs set in early 2022, although results are better once we include dividends. That’s a poor performance to begin with, but it’s all the worse considering the alternatives. The S&P 500 has almost doubled in the same period. The TSX Composite isn’t far behind, either.

But Canadian telecom stocks have some things going for them. They still generate gobs of free cash flow, a number that looks poised to increase over the next few years as expensive capex rollouts are mostly finished. Internet service is a necessity in 2026, and traditional telecom is still the best way for most Canadians to get online. We’ll talk about why Starlink isn’t a threat a little later.

Let’s take a closer look at one of the biggest players in the sector, BCE (TSX:BCE). Is the stock a buy as it falls to its lowest price since 2009?

BCE is Canada’s largest communications company, providing fibre internet, cable tv, home phone, wireless services, enterprise solutions, and various forms of media to customers in Canada and the United States. Combined, it has some 24 million customer accounts.

BCE separates the business into three sections:

The Canadian business is treading water. Revenue in its latest quarter was up a meager 0.1% to $5.251B. The company did gain mobile phone subscribers in Q1 — after a loss of subscribers in Q4 — but ARPU (average revenue per user) was down 0.8%.

Perhaps surprisingly, BCE posted nice gains in internet customers (more than 42,000) and cable (10,000+ new customers), as Canadian consumers responded well to Bell’s fibre offerings on the internet side and its Crave-included cable bundles on the video side.

(Aside, I’m a millennial who cut the cable cord like 13 years ago, and I have to admit shelling out $100 a month for cable is looking more and more attractive every day. I just want to watch the damn game, man.)

BCE is investing fairly heavily into AI, which includes data centres built in B.C. and another one under construction in Saskatchewan. That drove a nearly 10% increase in the Business Markets part of the company. I doubt it’ll stop with two data centres. More are likely on the way.

BCE’s U.S. division consists of the $5B acquisition of Ziply, which closed in 2025. Ziply increased the company’s footprint by some 1.4M homes into the United States. Bell (along with its partner in the deal, PSP Investments), will upgrade Ziply’s network so all of its customers will have access to fibre, which delivers the fastest internet speeds.

I, like a lot of other Canadian dividend investors, held BCE shares for years before I sold in 2024.

I left because BCE sold investors a turnaround story on selling non-core assets and using the proceeds to pay down debt. The company nailed the first part, especially when it sold its 37.5% stake in MLSE to Rogers Communications (TSX:RCI.B). But instead of using the proceeds to pay down debt, the company instead pivoted and acquired Ziply. My big issue with the Ziply deal was the cost needed to upgrade the network. BCE’s managers declined to tell investors how much this project would cost, a big deal to those of us who were already concerned with BCE’s stretched balance sheet.

BCE continues to obscure just how much it plans to spend on Ziply’s capex needs, giving investors vague measures of capital intensity, rather than breaking down capex by division. Basically, BCE (along with PSP Investments, its partner in Ziply) is treating Ziply like an outside investment, and is just reporting the results to investors. Ziply is borrowing to fund the fibre network, so numbers aren’t disclosed and forecasts aren’t given.

I’m not entirely happy with this. My view is BCE’s management should be more communicative to investors, not less. This is not a management team that deserves the benefit of the doubt.

BCE has disclosed that it plans to spend $1.3B on the Saskatchewan data centre in the 2026, which will impact free cash flow. Original 2026 guidance saw the company earning between $3.3B and $3.5B in free cash flow in 2026. Updated guidance is closer to $2.2B in free cash flow.

As I write this, BCE has a market cap of just over $28B, so we’re trading at a hair under 13× 2026’s free cash flow. It’s a cheap valuation, but not insanely cheap, y’know?

But there’s a different way to look at this. The Saskatchewan data centre is a one-time expense. If we exclude it from capex — as investors often do with growth capex — BCE trades for just 8x FCF. That’s cheap.

Finally we have media. BCE owns a bunch of Canada’s top tv and radio stations, including CTV, TSN, and the streaming service Crave. Crave has quietly become a nice little asset for BCE; it’ll likely surpass 5M subscribers in 2026. And unlike Rogers, which mostly just breaks even on its media/sports team division, BCE does generate some positive EBITDA there.

Any BCE analysis would be incomplete without a closer look at the company’s balance sheet. It still has plans to bring debt down by selling Northwestel, which services Yukon, the Northwest Territories, and parts of Northern B.C. and Alberta. The ~$1B deal would’ve made the company the largest Indigenous-owned telecom in the world, but the consortium of buyers still hasn’t closed the deal more than two years after it was first announced. BCE is confident the deal will close by the end of the year, which will provide some additional cash to put towards debt repayment. But I can also see why investors might be skeptical.

The company’s goal is to bring its net leverage down to 3.5x EBITDA by the end of 2027. That would give it a better balance sheet than Rogers, but worse than Telus, Quebecor, or Cogeco, provided that Telus hits its goal of 3x debt-to-EBITDA by the end of 2027.

Everybody keeps telling me Starlink is a huge threat to Canada’s telecoms, and I’m annoyed enough to set the record straight.

First the technical challenges. Yes, Starlink offers decent download speeds (although not as fast as fibre), but it really drops the ball on uploads. Downloads are 100-400 Mbps depending on the plan, while uploads are a meager 10-30 Mbps. Fibre is symmetrical, meaning it can offer equally fast upload and download speeds of between 500 Mbps to 10Gbps, depending on location, network, how fast of internet you pay for, etc.

Fibre is a better product. End of story.

Secondly, why would anybody who lives in one of Canada’s 100 largest metros (more than 85% of the population) switch to Starlink? Fibre passes by your house. The price is competitive. It’s a better product. It’s right there. Just use it! There’s no incentive to switch, especially in the competitive environment we have today. Just play the incumbents off each other if you want to save money.

Canada’s telecoms also offer Starlink services, including Rogers, who partnered with Starlink directly. This is a good thing for the small number of Canadians who live in rural parts of the country, since they can finally get decent internet at an affordable price. But there’s a reason why telecoms ignored this customer in the first place — there aren’t very many of them.

It’s a niche market at best, and that niche market can now be serviced by BCE, Telus, or Rogers just as well as Starlink can.

And finally, the Starlink hardware costs $499 for a standard home, or you can rent it for $10/month. My wired internet had a upfront cost of $0.00. One of those numbers is much lower than the other.

Rant over. Back to BCE.

The BCE opportunity here is simple. This is a company that generates a ton of free cash flow and is cheap. You also get paid an attractive dividend yield while you wait for the Ziply and data centre investments to pay off.

There’s a lot wrong with Canadian telecom today. I get it. But through it all the incumbents really haven’t been hurt as much as the share price would indicate. BCE should deliver more revenue in 2026 versus 2021, and free cash flow would be about 20% higher if it wasn’t for the one-time Saskatchewan data centre expense. Yet the stock is still down more than 50% versus the 2022 highs.

Valuation has compressed here significantly. Investors were prepared to pay 20x FCF for BCE in 2022. These days it’s about 11x FCF, and would be about 8x FCF if we strip out the data centre investment.

BCE has good assets. Its fibre network is the largest in Canada. Its wireless network is top notch, too. Yes, there is pricing pressure, and too much debt, but these are good assets that would cost tens of billions to replace. There is a moat here.

The bigger issue is with BCE’s management. These guys have a terrible reputation, and I can see why. Between the flip-flopping on the company’s long-term plans to doing their best to not disclose a damned thing about Ziply, this management team has serious credibility problems. That accounts for at least some of the reason why the stock is so cheap.

Does the quality of the assets win out? I’m not sure. I can see why folks might think so, but I can also see why people avoid the company.

BCE cut its dividend back in 2025 after months of investor speculation. The payout was cut by 56% from $3.99 to $1.75 per share on an annual basis.

The company suggested it would potentially return to dividend growth when the Ziply capex rollout was completed by the end of 2028, but I’m not sure about that. BCE’s managers seem addicted to spendahol, and dividend growth throws a real wrench into that lifestyle.

BCE is also doing its best to reposition itself as a tech company, and tech companies generally don’t take dividends very seriously.

As it stands today, the payout is quite sustainable. Even including the one-time Saskatchewan data centre build, the payout ratio is about 70% of free cash flow. The payout ratio based on projected 2027 free cash flow is right around 45%.

Combine that with the current dividend yield of 5.8%, and I see why BCE becomes attractive for those of you looking for a lot of dividend income today. It’s a nice combination of income and a low payout ratio.

Telus offers more dividend income today — its yield has ballooned to more than 11% — but we all know by now a dividend cut is coming. There’s some uncertainty as to how much Telus will cut. You don’t have that with BCE; you know what the dividend is going to be for years to come. There’s some advantage to that.

Dividend security: High
Dividend growth potential: Nothing for three years, then maybe something

I continue to think there are opportunities in Canadian telecom. The Big 3 have excellent networks, very real moats, and their free cash flow should increase going forward. Some of the debt excesses of the 2020-24 period have been rectified.

Yes, there are issues, as I highlighted. Competition is strong, and the feds want to bring down telecom prices. The CRTC has even forced the incumbents to open up access to their wireline networks to resellers, which does erode that moat a bit.

The question is whether BCE is the way to play the sector’s inevitable recovery? I’m not sure it is. Its balance sheet isn’t great, and the debt goal isn’t very exciting. The management team is meh at best. There are still many question marks surrounding Ziply. And there’s the possibility the sector gets worse before it gets better.

I wouldn’t begrudge anyone for adding this one. I see the positives. It’s a nice source of dividend income today with potential for capital gains in the future. But I’m going to continue to pass. This one just isn’t for me.

Author has no position in BCE, and doesn’t intend to buy either.