Where will BCE stock be in 5 years?

BCE (TSX:BCE) stock continues to fall.

• It fell more than 20% from April to October 2022 due to a rate hike.
• Another 20% drop came between April and October 2023 as BCE entered a price war with Telus Corporation to poach Shaw Communications customers. The price war reduced its profit margin, which was already stressed by rising interest expenses.
• The third 20% meltdown was from January to July 2024, when BCE restructuring led to thousands of layoffs and significant losses.
• The fourth meltdown of 24% came in November 2024 when BCE reported disappointingly earnings in the third quartera whopping $1.2 billion write-down and a pause in dividend growth.

The company’s market value has more than halved in the past 32 months. Are there more disadvantages?

The past three years have been (almost) a turnaround story for the Canadian telecommunications sector. It saw the acquisition of Shaw by Rogers and the emergence of Quebecor after the purchase of Shaw’s Videotron. Even Cogeco Communications’ the stock price rose from June 2024 onwards after halving since April 2022. The stocks of small players saw an increase while the big players continued to slide. Does this mean a power shift is underway?

The nature of the telecommunications sector is capital intensive. Unless small players pour in billions of dollars and build a dense fiber network that can support 5G in Canada’s big countries, they can’t capture market share. The power shift was visible when the regulator asked BCE and Telus to share their fiber networks with small players at reduced prices. In addition, the sector is undergoing a technical upgrade from 4G to 5G.

The 5G option

It takes four to five years to take advantage of the opportunity that comes with a technical upgrade. The 5G rollout brings broadband-like speed to the Internet of Things (IoT) devices and enables artificial intelligence (AI) at the edge. A secure cloud network and digitization will move to the next level and create more opportunities for cross-selling. As more devices connect to the Internet, internet connections become cheaper and revenue opportunities become wider.

To monetize the 5G opportunities beyond selling mobile subscriptions, you need an ecosystem, and BCE and Telus are building that. The generative AI frenzy may become more accessible with 5G. The next two years could be a year of recovery for BCE as it addresses the significant debt it took on to build the 5G infrastructure.

BCE’s restructuring, such as the sale of radio stations and electronics stores, may be too much to take. It can also reduce revenue and profits in the short term. However, the telco is moving in the right direction and embracing technology as it has realized that providing internet is not enough.

I wouldn’t be surprised if the company pauses its dividend growth for the next two to three years. However, it will make up for those years of accelerated dividend growth once it cashes in on the 5G opportunity.

Expected returns from BCE in the next five years

If you consider buying the stock when dividend growth resumes, you’ll miss out on an 11.6% return and a 2% dividend reinvestment plan (DRIP) discount. Most value investors buy stocks that are in trouble but have management that can lead them on the road to recovery. Due to these difficult times, the company offers the most lucrative offers to investors to stay invested.

A $3,000 investment can buy you 87 BCE shares now, instead of 54 shares on a normal weekday when the stock trades at $55. I assumed no dividend growth for three years and 3% growth from 2028 onwards. The high dividend and low share price could buy 10 DRIP shares annually, giving you the benefit of a higher share count when BCE increases its dividend growth.