BCE's Dividend - Solid Like a Rock

| About: BCE Inc. (BCE)

Now that last summer's private takeover of BCE Inc. (NYSE:BCE) is buried in the ground, all eyes are once again turned toward the telecommunication giant's historically rock-solid dividend.

Based on the company's outlook for the remainder of 2009, it is sturdy as ever. BCE's board approved a 5% increase to C$1.54 per share, annualized, on Wednesday as the company said it expects earnings growth of the same order of magnitude, 5%.

The driver of that income growth is largely from efforts to pare back spending in both operating costs and "non-growth" capital investment. Management said it expects to reap C$400-million in savings annually after the full extent of its restructuring plans are meted out this year.

Given the relative stability in its cash flow across its wireless and wireline businesses, "this should enable the company to sustain a modest dividend-growth trend," notes Jeffery Fan, analyst at UBS.

BCE has more than enough cash on hand — to the tune of C$3-billion — to repay C$1.5-billion in long-term debt coming due this year (if it cannot refinance because of tighter credit conditions) as well continue to bolster its stock price through its share buyback program.

Still, both its wireline and wireless operations remain under pressure from competition.

While losses at its traditional wireline are slowing, structural shifts toward cable and wireless offerings have not abated, Mr. Fan wrote in a note to clients.

Wireless growth is not moving as fast as expected either, analysts at Desjardins Securities note.

Lucrative multi-year contract subscribers additions last quarter (80,000) were "well below" Dejardins analyst Joseph MacKay's expectations. So were pay-as-you-go adds, said the analyst. who still maintains a Buy rating on the stock.

Both analysts maintained their Buy ratings on the stock and foresee a stable 2009 on guidance from the company this week. Their price targets range between C$26.50 and C$28 a share.

However, Mr. Fan cautions: "The company faces significant challenges ahead, which will require considerable investments and prudent management of costs and capital to overcome."