AT&T (T) was the only phone company around when I was growing up -- a government-regulated monopoly. That meant the company and its regular dividend payments were close to a "sure thing" as investors could get, but that's all long gone now. Yet despite the telecommunications industry's decades of deregulation, what hasn't changed is that large telecoms remain one of the income investors' best friends -- just look at BCE Inc. (BCE) .
BCE, which is Canada's largest phone company, currently pays a 5.76% dividend. Should you buy the stock? Let's check it out:
BCE has three divisions:
-- Bell Wireless, which (unsurprisingly) provides wireless services.
-- A wireline division that provides telephone and Internet services.
-- A media division that owns 30 TV channels and 105 radio stations.
BCE is one of the less-expensive stocks in the telecom-services sector, with a 17.5x trailing-twelve-month price-to-earnings ratio and a 13.9x trailing one.
Still, it's what I refer to as a "self-running" company, in that BCE's gross revenue has grown at a 2% to 4% clip for the past four years (with the exception of 2016, when earnings were only up marginally).
The company's margins have also been very consistent, running between 48% and 49% since 2014. Operating margin has likewise remained between 23% in 24% since 2014, while net margin has only fluctuated between 11.7% and 13.6%.
Income investors will also like the fact that EBITDA has consistently accounted for 37% to 39% of gross revenue. As the company has a standing policy of paying between 65% to 75% of its free cash flow as a dividend, the EBITDA number is very important.
Another bonus -- BCE's balance sheet is also rock solid, with receivables only accounting for 5% of total assets for the past five years. This tells us that the firm hasn't been making "bad sales" to book business at the expense of quality.
Similarly, there's no sign that the company is poorly managing its inventories. BCE's debt-to-asset ratio is also a very conservative 33%, while its interest-coverage ratio is only about 9x, a more-than-conservative number.
The company also has sufficient cash from operations to fund current investments even as it's paid out more than $11.3 billion in dividends in the just past five year. Lastly, BCE's 5.76% dividend yield is about 250 basis points higher than that of the 10-year U.S. Treasury note's, which should attract new investors.
BCE looks attractive in technical terms as well. It's currently trading near a 52- week low, but its high dividend yield makes it doubtful that the stock will move much lower.
The Bottom Line
This is especially opportune time to look at more-conservative companies like BCE. While there are no recessionary clouds on the horizon, we're slightly over nine years into the current U.S. economic expansion and the Federal Reserve is raising rates - signs that we're nearing an economic top.
Investors historically rotate into more-conservative stocks like telecommunications at the end of an expansion. After all, they want companies that provide services that people will always pay for regardless of the economic backdrop. You should, too.
This article was originally sent Oct. 6 to subscribers of TheStreet's Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this each day from Hale Stewart, Chris Versace, Jonathan Heller and others.