Monday, April 2, 2012


I own this stock (TSX-BCE). This was the first stock I bought and I bought some 50 shares in 1982. I bought another 50 shares the following year. After that, I used the DRIP program to purchase more shares with cash and dividends until 1987. I had an odd-lot of shares, so I bought 40 shares to round out the number of shares.

In May 2000, BCE spun off Nortel, I sold some shares in 2005 and then in July 2006 BCE spun off Bell Aliant. I sold off both Nortel and Bell Aliant and lost on both. Nortel was in free fall by the time Bell spun it off. Things like this can occur if you hold a stock for a long period of time. The reason I sold off some of BCE in 2005 was that Bell was not like the original widow and orphan stock it had been. The Telecommunication business was getting more complex and I thought that Bell was overpriced at that point.

Talking all the things that happened into account Quicken calculates my total return since 1987 at 9.3% per year, with 3.6% in capital gain and 5.7% in dividends. If I just look at BCE I get a total return of 16.3% with 11.7% from capital gain and 4.6% from dividends. (I also have some of this stock in my RRSP account since 1999. I did better at the sale on Nortel as I sold it as early as I could.)

Looking at my spreadsheet, I get total return over the past 5 and 10 years at 16.9% and 5.2% per year, respectively. Over the past 5 years, there was 12% in capital gains per year and 4.9% in dividends per year. Dividends were 29% of the total return. Over the past 10 years, there was 1.7% in capital gains per year and 3.5% in dividends per year. Dividends were 68% of the total return. (Most of the stock I follow did better over the past 10 years and poorer over the past 5 years, but this is the opposite.)

BCE has a very uneven history of dividend increases. I have tracked dividends on my spreadsheet since 1992 and most years there were no increases. Dividends were decreased after BCE spun off Nortel. There were a few years of big increases. The 5 and 10 year growth in dividends are 9.2% and 5.5% per year, respectively. Dividend increases have been very good since 2009, with 2010 and 2011 having two increases in each of these years. The most recent increase was this year and increase was for 4.8%.

The 5 year median Dividend Payout Ratios are 71% for earnings and 26% for cash flow. The DPRs for 2011 were 71% for earnings and 33% for cash flow. The 10 year median DPRs are better and lower at 64% for earnings and 21% for cash flow. The current DPRs are at acceptable levels.

For this company, there is little or negative growth over the past 5 and 10 years for revenues, cash flow and book value. There has not been any year over the past 10 were EPS or Cash Flow was negative. The only decent growth is in EPS. EPS has grown at the rate of 5% and 20% over the past 5 and 10 years.

As for debt ratios, the current Liquidity Ratios is low at 0.62, but the company does have decent cash flow. The current Debt Ratio is strong at 1.60. Both of these ratios are lower than the corresponding 5 and 10 year median ratios. The current Leverage and Debt/Equity Ratios are a little high at 3.70 and 2.31 respectively and they are higher than the corresponding 10 year median ratios of 1.78 and 1.95. (Please note that you want the first to debt ratios high and the second two low. See my site for further information on Debt Ratios.)

The Return on Equity for 2011 is very good at 24%, but the ROE based on comprehensive income is quite a bit lower at 17%. (An ROE of 17% is still good.) The 5 year median ROE is 15% and the 5 year median ROE based on comprehensive income is 14.9%, so they are close. (It is hard to know if the difference is due to the new accounting rules or not.)

There probably is room for shareholders to make a decent profit on this company or any telecom company. However, I feel that these companies may have higher risk than is generally acknowledged. I worry because anything I have read suggests that Canada has some of the highest telecom rates in the world. Such a situation can go on for much longer than anyone can image, but it will not go on forever. The government seems to be taking some steps to correct this situation. I am currently holding on to the shares I own which only constitute 1% of my portfolio.

BCE is Canada's largest communications company, providing the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Operating under the Bell and Bell Aliant brands, the Company's services include Bell Home phone local and long distance services, Bell Mobility, Virgin Mobile and Solo Mobile wireless, high-speed Bell Internet, Bell TV direct-to-home satellite and VDSL television, IP-broadband services and information and communications technology (ICT) services. Its web site is here BCE. See my spreadsheet at bce.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

No comments:

Post a Comment