Is BCE’s High-Yielding Dividend in Danger?

Canadian telecom giant BCE Inc (TSX:BCE)(NYSE:BCE) pays investors a mouthwatering 9.1% dividend yield right now. It’s a massive payout when you consider many stocks pay less than even 4%. At this high of a yield, it’s only natural to ask questions about whether the dividend is indeed safe. Oftentimes when a yield balloons to such a high percentage, it’s because there are underlying problems with the business.

It's been a tough year for BCE as its share price has fallen by 15%, even as the S&P 500 and the markets as a whole have been doing well. But telecom has not been getting much love, and BCE is certainly no exception to that.

The company last reported its quarterly earnings on May 2. And for the first quarter of 2024, BCE reported operating revenue of just over $6 billion, which was down less than 1% from the same period last year. Its free cash flow was the same, but net earnings of $457 million were down 45% as the company incurred higher costs related to workforce reductions, including severance.

Over the past 12 months, the company has accumulated around $3.1 billion in free cash flow, which is less than the $3.7billion it has paid out in cash dividends. It’s a bit of a shortfall and it does create the risk that potentially there could be a reduction to the dividend if its financials don’t improve.

For now, however, it may be too early to sound the alarm for BCE as the business is fairly stable and it generates consistent revenue from its strong customer base. Plus, workforce reductions should help improve its financials in the long run.

Overall, I wouldn’t be too worried about BCE’s dividend unless the company’s financial deteriorate further. This can be a good dividend stock to own, especially at its reduced valuation.