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Dividend stock where price weakness has represented a buying opportunity

North American equity markets are likely to remain locked in fairly neutral territory today ahead of Wednesday's two key releases, the U.S. Federal Reserve interest rate announcement and news conference, and weekly oil inventory data released from the U.S. Department of Energy. The price of oil is under pressure, once again, this morning.

On Monday, major North American equity markets opened the week relatively unchanged.

In the U.S., the Dow Jones Industrial Average fell 0.02 per cent, the S&P 500 Index was unchanged, and the Nasdaq composite index was down 0.18 per cent.

In Canada, the S&P/TSX composite index gained 46 points, or 0.32 per cent to close at 14,496. There were 168 securities in the TSX Index that advanced, 72 securities declined in value, and six stocks closed the day unchanged.

The S&P/TSX composite index is down 0.70 per cent month to date, up 3.07 per cent quarter to date, and has a gain of 11.42 per cent year to date.

Given the lack of momentum in the stock market, today's TSX Breakouts report is brief. There are 24 securities on the positive breakouts list (stocks with positive price momentum), and 14 securities appear on the negative breakouts list (stocks with negative price momentum).

Discussed today is a dividend stock where price weakness has represented a buying opportunity for long-term investors. The security highlighted today is BCE Inc. (BCE-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

BCE is multi-media company providing residential and business customers with communication services such as cell and landline phone services, internet services, and television services. The company segments its operating results into three core divisions: Bell Wireless, Bell Wireline, and Bell Media.

Before the market opened on Aug. 4, the company reported second quarter financial results that were relatively in-line with the Street's expectations. The company reported revenues of $5.34-billion, a gain of 0.3 per cent year-over-year, and in-line with the Street's forecast of $5.38-billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $2.268-billion, up 3.2 per cent compared to the same period last year, and close to the consensus estimate of $2.252-billion. Adjusted earnings per share (EPS) was 94 cents, ahead of the consensus estimate of 91 cents.

For 2016, management guided to revenue growth of between 1 per cent and 3 per cent, adjusted EBITDA growth between 2 per cent and 4 per cent, and adjusted EPS of between $3.45 and $3.55.

The share price closed slightly higher that trading day, rising 58 cents, or 0.9 per cent to close at $62.39.

Dividend policy

Management remains committed to returning capital to its shareholders, raising its dividend regularly. Earlier this year, the company announced a 5-per-cent dividend increase, raising its quarterly dividend to 68.25 cents per share, up from 65 cent per share. This equates to $2.73 per share on a yearly basis and an annualized dividend yield of 4.5 per cent. Management targets a free cash flow payout ratio of between 65 per cent and 75 per cent for 2016.

In comparison, Rogers Communications Inc. (RCI.B-T) and Telus Corp. (T-T) offer dividend yields of 3.5 per cent and 4.4 per cent, respectively.

Valuation

Analysts typically value the stock using either a discounted cash flow approach or a net asset value approach.

According to Bloomberg, shares of BCE are trading at an enterprise value-to-EBITDA multiple of 8.3 times the 2017 consensus estimate.

Analysts' recommendations

According to Bloomberg, there are seven analysts with 'buy' recommendations, and 13 analysts with 'hold' recommendations. There are no 'sell' recommendations.

The average one-year target price is $63.22, which implies just 5-per-cent upside over the next 12 months. Target prices range from a low of $57 to a high of $68. Individual target prices provided by 16 firms are as follows: $57, $58, $60, three at $61, two at $62, three at $63, $65, two at $66, $67, and $68.

The consensus revenue estimates are $21.68-billion in 2016, rising 2.6 per cent to $22.25-billion in 2017. The Street is forecasting EBITDA of $8.797-billion in 2016, climbing 4 per cent to $9.158-billion in 2017. EPS is forecast to come in at $3.51 in 2016, increasing over 4 per cent to $3.67 in 2017.

Earnings forecasts have been relatively stable. Since the start of the year, there have been just minor changes, albeit negative revisions, to the company's earnings forecasts. For instance, on Jan. 1, the EPS forecasts were $3.54 for 2016 and $3.79 for 2017.

Chart watch

The stock price has been in a multi-year uptrend since 2009.

So far in 2016, the share price for BCE has increased a respectable 12 per cent, slightly below shares of Rogers, which are up 16 per cent year-to-date, but rising more than shares of Telus, which have rallied 10 per cent.

There is initial overhead resistance in the $62 to $63 range, which is close to its 50-day moving average (at $62.05) as well as its August peak (closing price of $63.21 on Aug. 12).

In terms of downside support, there is initial support between $59 and $60. The stock's 200-day moving average is at $59.04.

The relative strength index is at 36, suggesting the share price is nearing oversold territory. Generally, a reading at or below 30 indicates on oversold condition.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsSept. 19 close
ADW.A-TAndrew Peller Ltd $33.00
APH-TAphria Inc. $3.19
PXX-TBlackPearl Resources Inc $1.39
DOO-TBRP Inc $26.07
CJT-TCargojet Inc $42.49
CHW-TChesswood Group Ltd $11.74
CGG-TChina Gold International Resources Corp. $3.08
CSW.A-TCorby Spirit and Wine Ltd $21.90
GSY-Tgoeasy Ltd $23.81
GC-TGreat Canadian Gaming Corp $22.57
ISV-TInformation Services Corp. $18.15
GUD-TKnight Therapeutics Inc $9.51
PWT-TPenn West Petroleum Ltd $2.42
PSG-TPerformance Sports Group Ltd $4.93
PIF-TPolaris Infrastructure Inc. $16.70
RET.A-TReitmans Canada Ltd $6.12
RSI-TRogers Sugar Inc $6.64
SIS-TSavaria Corp. $11.15
SH-TShopify Inc. $56.88
TOY-TSpin Master Corp. $30.98
SCB-TStreet Capital Group Inc $1.78
STB-TStudent Transportation Inc $7.92
SXP-TSupremex Inc $5.66
TET-TTrilogy Energy Corp $7.07
Negative Breakouts
BOS-TAirBoss of America Corp $13.08
BTE-TBaytex Energy Corp $5.11
BBD.B-TBombardier Inc $1.75
CAO-TCara Operations Ltd $29.59
CXR-TConcordia Healthcare Corp $6.76
CPG-TCrescent Point Energy Corp $16.58
KWH.UN-TCrius Energy Trust $8.27
DRM-TDREAM Unlimited Corp $7.20
ET-TEvertz Technologies Ltd $16.54
FVI-TFortuna Silver Mines Inc $9.73
HBM-THudBay Minerals Inc $4.88
MDA-TMacDonald Dettwiler & Associates Ltd $81.25
NBZ-TNorthern Blizzard Resources Inc $3.61
PD-TPrecision Drilling Corp $4.89