Better Telecom Buy: Telus Stock or BCE?

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Written by Andrew Button at The Motley Fool Canada

Telus (TSX:T) and BCE Inc (TSX:BCE) are two of Canada’s favourite dividend stocks. They share many similarities. Indeed, they are basically the same type of business: providers of cellular, internet, and TV service to Canadians. Despite this obvious similarity, there are differences between the two companies as well. Notably, they have pursued very different strategies for diversifying their operations. Whereas BCE has branched out from telecommunications by getting into media proprietorship, Telus has opted to diversify into customer experience consulting. In this regard, Telus and BCE are worlds apart. In this article, I will explore Telus and BCE stock side by side, so you can decide which stock is best for your portfolio.

The case for Telus

A case can be made for picking Telus stock over BCE stock on the basis of growth. In the trailing 12-month period, Telus grew its revenue at 11.5%, while BCE grew at a mere 2.9%. The same trend holds over the last five-year period, a time period in which Telus’ revenue has grown at a 7.5% CAGR, while BCE’s revenue has only grown at a 1.13% CAGR. On the other hand, BCE has somewhat better growth in earnings and free cash flow, so this category isn’t exactly a slam-dunk victory for Telus.

The case for BCE Inc

A case for choosing BCE over Telus can be built on the former stock’s better valuation, dividend safety, and profitability.

BCE stock is generally cheaper than Telus stock. This point can be proven by looking at the chart below:

Ratio

Telus

BCE

P/E

26

17

P/sales

1.8

2

P/book

2.8

2.9

P/cashflow

8.5

6.5

Technically, this category is a draw, with Telus and BCE each scoring a few points. However, the P/E ratio is far more important than the price/sales ratio, so overall I’d call BCE stock cheaper than T stock.

It’s a similar story with profitability. BCE is far more profitable than Telus, with a 9.5% net margin to T’s 4.5% net margin. Likewise, BCE has the higher return on equity, 12.4% compared to Telus’ paltry 4.4%.

Finally, we have the dividend metrics. Here, BCE Inc has some impressive numbers, including a 7.16% yield, a three-year dividend growth streak, and 11.5% CAGR dividend growth over the last five years. Telus scores worse, with a 6.15% yield, a two-year growth streak, and 6.5% CAGR dividend growth over the last five years. Finally, BCE’s payout ratio, 120%, is lower than Telus’ 150% – with this metric, lower is better. So BCE has got Telus beaten on dividend safety and yield!

Foolish takeaway

Looking at all of the financial factors I’ve examined in this article, BCE Inc would appear to be a better dividend stock than Telus. It outscores Telus on every single metric I could find, and on top of that, it arguably has the edge over Telus in some unquantifiable “soft” factors, such as brand recognition. Pretty much everybody in Canada knows Bell, not everybody necessarily knows about Telus. So, BCE has more factors going for it than Telus does, without a doubt.

The post Better Telecom Buy: Telus Stock or BCE? appeared first on The Motley Fool Canada.

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Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

2023