Canadian Dividend Investors
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Dividend Safety
...what you really must know, and all you really must know
is what's happening to the dividend:
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Lowell Miller
Lowell Miller was the President and lead portfolio manager of Miller/Howard Investments Inc., and was a professional money manager for over thirty years. To minimize the risk that the dividend could be cut or discontinued, Miller suggests we consider four questions as outlined below. Your answers to these questions will govern your decision as to whether or not you want to buy some common shares of a company, or whether you want to continue to hold the company in your portfolio.
Is the dividend in jeopardy?
As a general rule the total annual dividend paid by the company should always be less than the annual earnings, except under special circumstances, as illustrated below for BCE inc. The historic dividend payments and earnings for BCE Inc. are highlighted below on the Value Line Investment Survey (VLIS) report dated June 7, 2024.
By inspection, it is apparent that in almost every year since 2020, the company's earnings are less that the dividend payments. Normally this would be a cause for concern, however, notice that the cash flows, which are equal to the earnings plus non-cash items such as depreciation and amortization, are more than twice the value of the dividend payments. That is, the company has sufficient cash on hand to cover the amount of cash required to pay the dividends to the shareholders. Further investigation reveals that a significant portion of the cash is being spent to replace copper data lines with fibre optics lines, which have a significantly greater bandwidth than copper lines and will greatly reduce data download times for customers. These capital costs can be expected to fall dramatically, once the conversion is completed. After than, it is expected that annual earnings will increase as capital costs fall.
Has the company changed its dividend policy?
No, the data shows us that since 2015, company management is contining to take steps to continue to increase the dividend payments each year. This should become easier as the capital costs for the fiber optics expansion begin to wind down.
Has the company failed to raise its dividend?
No, VLIS report shows that the company has raised its dividend every year since 2015.
Has the company cut its dividend?
The VLIS data shows that the company cut its dividend by about 10% in 2015, but has raised the dividend every year since that time. It would be necessary to review the annual reports for the 2015 fiscal year in order to determine the reason for the dividend cut.
Based on foregoing information, I would conclude that future dividend payments by BCE Inc. are not in danger of being cut or discontinued, at least in the foreseeable future. However, I will be looking to see that the capital costs do start to fall over the next few years and annual revenues and earnings steadily increase, as expected.
1. Lowell, L. 2006. The Single Best Investment, Creating Wealth with Dividend Growth. The Print Project, P.O. Box 703, Bearsville, NY 12409, 2nd Ed., p.160