BCE (TSX:BCE) stands as one of the premier dividend stocks on the Toronto Stock Exchange (TSX), attracting investors with its robust market presence and attractive dividend yield. However, with the stock down over 20% from its all-time highs, investors are left wondering whether BCE remains a viable investment option in 2024.


Image Credit: Pexels

Understanding BCE's Current Position

With a market capitalization of $42.5 billion, BCE offers shareholders an enticing annual dividend of $3.99 per share, resulting in an impressive forward yield of 8.6%. This elevated yield is primarily attributed to the significant drawdown in BCE's share prices over the past 12 months, making the stock an attractive option for income-seeking investors.

Performance in Q4 2023

In the fourth quarter of 2023, BCE reported encouraging sales growth and strong net additions, particularly in its broadband internet segment. The company strategically managed promotional offers, striking a balance between growth and profitability while witnessing an improvement in product margins. BCE's robust fibre footprint allowed it to expand its market share, especially in Quebec, driving solid residential internet revenue growth of 7.1% in 2023.


Additionally, BCE's media business demonstrated resilience amidst challenging advertising market conditions, with digital revenue surging by 19% and accounting for a significant portion of total sales. The company aims to capitalize on the digital space further, leveraging premier content partnerships to gain a foothold in the digital advertising market in 2024 and beyond.

Assessing the Sustainability of BCE's Dividend Yield

Despite its enticing dividend yield, investors in TSX dividend stocks like BCE must assess the sustainability of its dividend payout ratio. In recent years, BCE's payout ratio has surged beyond 100%, suggesting potential difficulties in maintaining dividends at current levels. Typically, telecom companies aim for payout ratios below 80% to allocate resources effectively towards growth, debt reduction, and acquisitions.


BCE's payout ratio, excluding capital leases, has steadily risen, reaching 111% in 2023. However, factoring in capital leases, the ratio could exceed 155%, raising concerns about dividend sustainability. While BCE plans to reduce the ratio below 100% by 2025 after fiber expansion, analysts caution that including capital lease payments may still lead to a ratio surpassing 100%.

Conclusion

While BCE has demonstrated resilience and growth potential in its core segments, investors should exercise caution due to concerns surrounding the sustainability of its dividend yield. With the payout ratio exceeding optimal levels and uncertainties regarding capital lease payments, it is essential for investors to conduct thorough due diligence before committing to BCE stock.


In summary, while BCE's high dividend yield may appear enticing, investors must weigh the risks associated with its payout ratio and future growth prospects. Diligent monitoring and prudent decision-making are crucial to navigate the evolving landscape of dividend investing in the telecommunications sector.