Income Investing Investing

BCE: 128% Dividend Growth Since 2008


In my opinion, BCE benefits from the insulating properties of Canada’s telecom oligopoly, and therefore should benefit from long term pricing power and customer retention. The stock trades at a reasonable valuation and has a good dividend track record. As a dividend growth investor, BCE is part of my portfolio.

Please consult a registered professional before making any investment decisions for your own portfolio.

Companies in Oligopolies Are Insulated From Competitive Forces

Canada has a relatively small population that is spread across a vast geography. This has profound implications for the structure of the Canadian economy and the companies that dominate. 

Source: Wikipedia

Simply, Canada doesn’t have the population size or density for many industries to support multiple companies operating at efficient scale. For this reason, many industries in Canada operate as oligopolies, with a handful of dominant players with little to no threat from new entrants. This is especially true in industries with high entry costs like telecommunications, media and financial services.

Since it is difficult to create scale in these industries, there is the constant threat to the Canadian economy that the number of players in these oligopolies shrinks. Many would agree when I say executives in these industries are usually closely tied with government, receiving implicit support for profitability. (If the Canadian government wasn’t trying to insulate these industries they’d make it easier for foreign competition to enter the marketplace!)

These industries provide core infrastructure to the Canadian economy, so to balance access with profitability the Canadian government must turn a blind eye to obscene pricing.

This sucks for Canadian consumers, but it’s great for investors.

Telecom Giants

Let’s look at Canada’s mobile phone industry as an example. The following chart compares mobile phone plans in Canada with those in the United States. As you can see, Canadians pay a 15-40% premium for the same service.


Despite higher prices, there remains little choice and consumers aren’t deterred from buying. Consequently, the big 3 carriers (BCE, Rogers and Telus) in Canada – which have a 90% market share – continue to grow mobile revenues.

Infographic 10.2 Highlights of the retail mobile revenues, 2018
Source: CRTC

Of course, these big 3 telecom companies provide more than just mobile phone services. They are telecom and media conglomerates that control Canadian wireless, wireline, internet, media and professional sports franchises. Essentially, these companies control a huge portion of everything seen and heard in Canada. Not all business segments are shooting the lights out, but they retain tight control and strong pricing power. Moreover, the bundling effect of packaging several related products and services provides a strong customer retention incentive and helps drive out pure-play competition.


BCE is Canada’s largest telecommunications company with a customer base of over 22 million subscribers. This is approximately 60% of the entire Canadian population. With its wireless infrastructure reaching 99% of the Canadian population and wireline infrastructure reaching about 75% of the population, BCE is well positioned for continued subscriber growth.

Canadians love to complain about BCE (aka Bell) and its main competitor Rogers. (I’d love to read your stories in the comments below.) However, given its infrastructure and network quality – and with few alternatives – Canadians continue to fork over money to the many brands that BCE controls. 

For those not familiar, BCE owns the following (which I copied from BCE’s website):

Business LineDescription
BellCanada’s broadband leader providing advanced wireless, Internet, TV, smart home and business services over our world-class LTE and fibre networks.
Bell AliantAtlantic Canada’s leading name in residential Internet, TV, and home phone services, and a trusted partner to business and public sector clients.
Bell MediaCanada’s leading content creation company with premier assets in television, radio, out-of-home advertising, and digital media.
Bell MTSManitoba’s top name in home and business communications, and a leader in managed data and professional services through our Epic subsidiary.
Lucky MobileLow-cost prepaid wireless featuring convenient account management app and flexible add-ons for data, international calling and more.
Northwes TelLeading investor in communications infrastructure in Canada’s north, providing Internet, TV and phone services over a vast territory.
The SourceCanada’s largest tech retailer, offering the latest products from top brands and knowledgeable associates at stores across the country.
Virgin MobileNational provider of pre- and post-paid wireless services with award-winning customer service and innovative Member Benefits.
Source: BCE Website

The Bell brand is currently the top non-financial brand in Canada, as rated by Brand Finance’s list of the Top 100 Canadian brands for 2018. So it appears that a vocal minority of complainers is out-weighed by a silent majority of BCE customers (or at least by the committee that ranks these brands).

While BCE’s oligopolistic power helps retain customers, it actually does provide a valuable, high quality service. So it’s not hard to understand why many people are fine with BCE’s products and services.

As a lead company within the Canadian telecom oligopoly, I expect BCE to retain this market power, as it continues to own, control and invest in critical infrastructure, including 5G. This gives BCE a market position that is unlikely to erode anytime soon, in my opinion.

BCE Dividend

BCE stock currently has a dividend yield just under 6% and has a solid track record of dividend growth. Since 2008, its dividend has grown by 128%, with each increase at 5% or more. BCE dividend policy aims to grow dividends while maintaining a payout ratio (based on free cash flow) of 65-75%, and has done so over most of the past 12 years.

Throughout the 2020 Covid-19 crisis, BCE’s dividend has remained well-covered by free cash flows, with YTD coverage at about 66%. Moreover, according to BCE:

“Our strong liquidity position, underpinned by a healthy balance sheet, substantial free cash flow generation and access to the debt and bank capital markets, is expected to provide significant financial flexibility to execute on our planned capital expenditures for 2020 and to sustain BCE’s common share dividend payments for the foreseeable future.”

BCE Q2 2020 Shareholder Report

As a ‘boring’ telecom provider, BCE has weathered the Covid-19 economic crisis remarkably well, as highlighted during its Q2 2020 presentation. Operating revenues declined by 9.1% year-over-year, but the business saw growth in other metrics. This adds to my confidence that BCE will be able to continue to pay its dividend throughout the ongoing crisis and beyond.

Source: BCE


The biggest immediate risks to BCE is the unpredictability of the pandemic and capital markets. However, as Q2 performance suggests BCE is hurting less than other companies. 

Over the long run, I think the biggest structural risks to BCE are the following:

1. Changing viewer habits: Specifically, people ‘cutting the cord’ and moving away from traditional TV distribution. This is especially prevalent with younger generations.

2. Rising content costs: With the growing need for proprietary content – Netflix, Disney+, Crave, etc. – there is increased competition, driving prices upwards. 

3. Market saturation: With such deep penetration, there are limits to new subscriber growth. However, the ability to continuously increase prices helps offset this risk. Continued population growth (once immigration picks up again post-Covid) will also help offset this risk.

Final Thoughts

Currently, BCE is neither cheap nor expensive. It trades at 17x forward earnings – reasonable and far below many other alternatives in this effervescent market.

Source: Yahoo Finance

In my opinion, BCE is fairly insulated from game-changing competition. As part of an oligopoly, BCE should retain pricing power and a strong hold of its customer base for a long time.

Over the long run I believe BCE revenue should be able to keep up with nominal GDP growth (at least) and will likely continue to grow dividends in parallel. While I’m not expecting massive BCE stock price appreciation, I would be happy with a slow grind upwards supported by a growing dividend stream.

For these reasons, BCE is one of my ‘buy-hold-and-forget’ holdings.

ETFs and Funds Income Investing Investing

Review: BMO Equal Weight Banks Index ETF (ZEB)

With Q3 earnings for the Canadian banks behind us, you might be considering investing in the banks using BMO Equal Weight Banks Index ETF (ZEB). This ETF exclusively holds an equal weight of each of the big 6 Canadian banks. While the convenience of this one-ticket solution is enticing, I believe using this ETF is a bad financial decision for long-term buy-and-hold investors.

I wouldn’t blame you for wanting to invest in the Canadian banks. I believe the banks have provisioned adequately for significant loan losses and are well prepared for the current economic disaster. Furthermore, Royal Bank, TD, CIBC, Scotia and Bank of Montreal respectively pay a 4.2%, 4.8%, 5.6%, 6.3% and 5.1% dividend yield (as at August 28, 2020). Many investors view these companies as interesting long-term holdings.

While ZEB can simplify the investment into Canadian banks into a single transaction, investing in a highly concentrated ETF like ZEB can be a bad idea. Anyone interested in buying-and-holding the Canadian banks for a long time might be better off simply buying the individual stocks.

Forget BMO Equal Weight Banks Index ETF (ZEB)…Buy the Stocks Instead

For example, let’s say you have $20,000 you want to invest. With an MER of 0.61%, ZEB ETF will cost you $122 per year to own plus any trading commissions. That cost (excluding the trading commission) is repeated each year in perpetuity and will rise as your holdings appreciate in value.

In contrast, you can buy 5 of the banks for a total one-time trading commission of between $0 and $50 (depending on your online broker). Let’s be generous and say you could pay $100 in commissions for the round trip. If you plan to hold your investment for a decade ZEB would cost you at least $1220 while owning the individual stocks would cost a maximum of $100.

While it’s true that ZEB rebalances between its holdings, one could easily replicate this at minimal cost annually using the dividend income spit off from these stocks.

Overall, the value proposition for ZEB is fairly weak for long-term investors. Of course, the story is different for people using ZEB for short term trading or hedging purposes. But I would guess that a significant number of people who hold ZEB don’t realize this.

If you’re a buy-and-hold investor I just saved you $1120. Don’t spend it all in one place.

Start building wealth today!


Does Gold Outperform Stocks Over the Long Run?

Get Your Free Copy

There’s a financial meme out there that suggests gold and silver have outperformed stocks over the past 20 years. The chart looks something like this:

Gold line = gold
Silver line = silver
Blue line = Dow Jones Industrial Average (DJIA)
Red = S&P 500

Looking at this chart, one might come to the conclusion that gold and sliver outperform stocks over the long run. However this conclusion is incorrect.

First of all, the relative performance shown in the chart is very sensitive to start and end dates. For example, if the chart goes back an additional 10 years the outcome completely reverses with stocks outperforming gold and silver:

Alternatively, if I shift the 20 year period to 1959-1979 gold and silver’s out-performance is dramatically amplified.

The point I’m trying to make is that the relative performance of gold and silver is highly dependent on the time period in question. In other words, the performance of precious metals changes with the economic environment. One cannot judge long-run expected returns for gold and silver based on any single period alone.

The next point I want to make is that these memes often make the mistake of comparing gold and silver against the price returns of various stock indices. The charts above use the price returns for the DJIA and S&P 500. Price returns don’t include dividends and therefore provide an incomplete picture of the actual returns from holding stocks.

Below, I’ve re-created the charts and added a black line that represents the total returns provided by large cap stocks (using the Wilshire Large Cap Index back to 1978 and S&P 500 Total Returns Index prior to 1978). While the price return for S&P 500 (red line) was 129% over the 20 year period, the Total Return (black line) was 240%. Gold and silver still dramatically outperformed during this 20 year period.

Like in the previous example, extending the history to 30 years flips the script. While the price indices outperform (as they did in the earlier example) the new total returns line dominates. The added compounding effects of dividends becomes increasingly noticeable as time goes on.

The farther back you go, the more impactful the compounding effects of dividends become. The following chart compares 100 years of returns, with the total returns index being the clear winner, while gold, silver and price return stock indices barely register.

Today, we could be in a period in which gold and silver outperforms stocks. This out-performance is highly dependent on the prevailing economics, such as negative real yields and currency depreciation. There are so many factors that nobody really knows for sure.

I personally believe a strategic allocation to gold can help improve portfolio risk-return characteristics. I also believe that we might be in an economic environment in which gold outperforms stocks. However, to extrapolate the out-performance of the last 20 years to argue that precious metals should provide higher expected returns over the long-run is misleading.

Subscribe (free) and we’ll do our best to help you build wealth: