Will BCE’s dividend be squeezed?

Unimpressive financial guidance for 2025

Just when investors thought it couldn’t get worse, it did. On Feb. 7, shares in BCE Inc. (TSX: BCE) touched their lowest level since 2010, ending at $31.62. At that price, the stock was yielding 12.6%, based on a quarterly dividend of $0.9975 ($3.99 a year). The share price has recovered a bit over the past month, but nowhere near last fall’s highs near $50. Those numbers tell us two things.

• Investors believe a dividend cut is coming. The company has already announced it won’t raise the dividend this year but has made no mention of a cut. The market seems sure it’s coming.
• Confidence in management is slipping. The company’s focus on fibre optic cable and its plans to build out the system in the Pacific Northwest through its acquisition of Ziply Fiber for about $5 billion shocked the market when it was announced last year. The expectation had been that BCE would use the money from the sale to Rogers of its stake in Maple Leaf Sports and Entertainment (MLSE) for debt reduction. Instead, the company chose U.S. expansion.

The latest financial results were better than expected, but that didn’t stop the stock from falling still more. Operating revenue for the fourth quarter of 2024 was $6.422 billion, down a fraction from $6.743 billion in the same period of 2023. Adjusted net earnings were $719 million ($0.79 a share), up from $691 million in the previous year ($0.76 a share).

For the full 12 months, BCE reported revenue of $24.4 billion, down 1.1% from $24.7 billion in 2023. Adjusted net earnings were $2.8 billion, down 5.2% from the prior year.

Of special concern was the big drop of 32.2% in fourth-quarter free cash flow, to $874 million. BCE bases its payout ratio calculation on cash flow, not earnings. At the current level, free cash flow is not covering dividend payments.

On the positive side, the company reported a participation rate of approximately 34% for its discounted dividend reinvestment plan. The fourth-quarter dividend payment on Jan. 15 generated cash savings of $308 million.

Hints on the “strategic roadmap”?

BCE says that in 2025 it is “implementing a strategic roadmap that aims to generate revenue growth, while managing costs and capital allocation priorities.”

Sounds very grand, but the guidance for fiscal 2025 was unimpressive. Revenue growth is expected to be more-or-less flat, with +1% on the high side and -3% on the low side. Earnings per share are expected to be down by between 8% and 13%. The only encouraging forecast was an increase in free cash flow of between 11% and 19%.

That would be good news for those who want the company to maintain its dividend at the current level. But BCE is dropping hints that the dividend is not sacrosanct. The company said its board will continue to review the dividend and payout policy. The directors “will consider the competitive, macroeconomic, and regulatory environments as well as progress being made on our strategic and operational roadmap,” the company said.

If the dividend were cut in half, to $0.50 a quarter, investors would be receiving a 5.9% yield, based on the Feb. 14 closing price of $33.78. That would be more in line with BCE’s historic payout rate.

Don’t be surprised if it happens. In fact, a dividend cut could take some pressure off the stock and allow it to stabilize around the current level.

Investors with BCE in their portfolios might want to consider holding on. The company is profitable and is in no danger of going out of business. A dividend cut would not be the end of the world in the current situation.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Content © 2025 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

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