BCE Vs Telus How The Lizard With a Huge Tongue Will Conquer Goliath

2 weeks ago, I was presented the Telus Stock Analysis. I obviously told you how this company is great since I bought it a few months ago ;-). But Michel asked me what I thought of BCE and forced me to tell him that I would compare Telus to Bell (BCE). Well this is the day! I’ll be telling you why Telus is a much better investment then BCE at the moment.

But first, let’s start with BCE metrics :

There is also further information about Bell at BCE stock analysis at Canadian Dividend Stock

Don’t be fooled by the dividend yield

If you look at the current dividend yield for both companies, Telus is no match at the moment :

5.21% for BCE  vs 4.27% for Telus.

And if you dig a little bit further and check out their dividend payout ratio, you won’t see much difference either. Both companies stay around 60%. So buying shares of BCE for its dividend seem to be the logical choice, right?

Think again!

If you look at the past 5 years, Telus has been increasing its dividend by 16% annually while BCE is showing a skinny 5%. In addition to that, Telus has the intention of increasing its dividend by 10% in 2012 and 2013. So in 2 years, T will have a similar dividend to BCE. When we look at BCE, they have no clear intention to raise their dividend in the upcoming years. We could assume that they will increase their dividend but can they really afford it? Here comes my second point…

Look at the revenue streams

As mentioned in my previous analysis, Telus is getting about 50% of its income from its wireless activities and the other 50% from wireline activities. This is far from being the case for BCE. In fact, BCE has only 25% of its revenue coming from wireless and 75% coming from a declining business model (wireline).

Each year, BCE is losing market share (and revenue) from its wireline activities. Strong local competitors such as Videotron have entered the wireline industry and now offer combos with internet, landlines, cable and mobile phone service. Since its a mature market with more competitors, it only means less profit from this activity.

On the opposite hand, Telus seems to be in a much better position to benefit from the growth of the mobile market. Remember that the penetration rate in Canada for mobile phone users is 80% as compared to over 100% for some European countries.

Telus has moved towards the wireless industry much faster and with more success than Bell. Since this is where growth will be generated for telecoms in the upcoming years.  My guess is that Bell dividends won’t be increased too much. Or they will do it by incurring a higher dividend payout ratio than Telus at some point.

Combativity or old Monopoly?

There is one thing that really bugs me about BCE. It’s more personal and less rational. But still, it’s a fact. Bell used to have a monopoly in Quebec. This means that they used to own all landline business. What happens when a company has a monopoly? It sits on it and become lazy.

Even though the market has changed and BCE is not a monopoly anymore, I still have the feeling that the roots of the company are still leaking this poison. They seem slower to react and don’t show innovation as other telecoms do. I’ve seen some great improvement from BCE in the past recent years but the traces of the monopoly are still there. This could eventually cost them more than a few points of their wireline market share!

Final Thoughts on Telus & BCE

Telus is a smaller and more active company. BCE is a stable dividend payer. If you are looking for dividend growth combined with capital growth, I think Telus should be your choice. On the other hand, if all that matters to you is a stable stock with a stable dividend, BCE is definitely a great option over the next 5 years. So BCE is a great stock to pick… but I just prefer Telus for a few reasons ;-).

Disclaimer: a own shares of Telus (T)