Bell Canada Enterprises BCE Stock price Outlook

Bell Canada Enterprises BCE Stock price Outlook, Bell Canada Enterprises BCE Stock price predictions ; It's a good thing the multi-billion plan to privatize BCE failed on a legal technicality back in December 2008. If it had gone through, investors would have been deprived of one of the few safe havens during stock market storms.



That's not to say that BCE shares will never decline in value. But they have proven to be amazingly resilient, even during the roughest periods. For example, the stock opened this month at $36.46. After the first big market plunge, on Aug. 4, it ended the day at $36.13. After the second tumble, on Aug. 8, it closed at $35.75, down only 1.9% from its Aug. 1 level. The shares closed on Friday at $38.42 (US$39.06), up 5.4% so far this month. That compares to a loss of 7.3% for the S&P/TSX Composite Index. That performance clearly establishes BCE's Super Stock ranking. Here are the details:



The business: BCE is the largest telecommunications company in Canada providing a full range of telephone, wireless, and satellite services. It also owns the CTV television network, several speciality channels, and is venturing into the cable TV business in competition with well-established providers like Rogers.



The company traces its history all the way back to Alexander Graham Bell, the Canadian inventor of the telephone. In 1877, he assigned 75% of the telephone patent rights to his father, Melville Bell, who with his friend Rev. Thomas Henderson used the money to launch a phone business that began with wooden handsets. A few years later, Melville Bell sold the rights to William H. Forbes who operated the National Bell Telephone Company of Boston. In 1880, National Bell sent an employee to Montreal to organize a Canadian operation which was incorporated in April of that year as the Bell Telephone Company of Canada.



In 1882, the fledgling company expanded into the manufacture of telephones by setting up a division that eventually became known as Northern Electric (1895) and many years later as Nortel.



Over the subsequent century, Bell grew to be the dominant telephone provider in Ontario and Quebec. In 1983, Bell Canada Enterprises (BCE) became the parent company.



The CTV network is owned by subsidiary company Bell Media which also controls such popular speciality channels as TSN, MuchMusic, Discovery, The Comedy Network, and Space.



The security: We are recommending the common shares of BCE Inc. which trade on both the Toronto and New York Stock Exchanges and are widely held.



Why we like it: A decade ago, BCE appeared to be floundering. Management was on a growth binge, investing money in a range of activities that were outside the company's comfort zone. Some of these turned out to be spectacular failures, costing the company and investors millions of dollars.



Since the collapse of the privatization, a new management team has reestablished BCE's focus on its core business and the company has thrived. Financial results have been consistently excellent and the dividend has been raised six times since it was reinstated in December 2008 (payments had been suspended while the privatization negotiations were under way).



Financial highlights: On Aug. 4, BCE released some impressive second-quarter results, which I reported on in the Aug. 8 IWB. To reiterate, operating revenue came in at just under $5 billion, up 11.6% from $4.4 billion in the same period last year. Net earnings attributable to common shareholders were $590 million ($0.76 per share) compared to $605 million ($0.80 per share) in the same quarter last year. However, the year-over-year decrease was due mainly to the recognition of the $164 million CRTC tangible benefit obligation related to the acquisition of CTV. Taking out this and other non-recurring items, BCE's adjusted earnings per share (EPS) increased by 10.3% to $0.86 from $0.78 last year.



The company reconfirmed previously announced increased financial guidance for the rest of the current year. BCE expects adjusted EPS growth of between 6% and 9% this year, to the range of $2.95 to $3.05. Free cash flow is forecast to be between $2.2 and $2.3 billion.



Risks: BCE would not escape the effects of an economic downturn, with television advertising revenues being the soft spot. But overall, the company's business is generally recession-resistant and the high dividend, which is safe, will protect the stock from a steep decline.



Distribution policy: The current quarterly dividend is $0.5175 per share $2.07 annually) which translates into a yield of 5.4% based on Friday's closing price. The latest increase was earlier this year and was the third hike in 12 months. BCE has set a target dividend payout ratio of 65% to 75% of adjusted EPS. The current level is 68% to 70% of 2011 forecast earnings per share.



BCE offers a dividend reinvestment plan which allows you to buy either common shares or preferred shares with no brokerage commission.



Tax implications: Payments made to Canadian non-registered accounts qualify for the dividend tax credit. The credit does not apply to dividends paid to registered plans. For U.S. investors, dividends are subject to a Canadian 15% withholding tax, which can be recovered through the foreign tax credit.



Who it's for: BCE is a suitable choice for conservative investors looking for current income and long-term growth. It is a core portfolio holding.



Action now: The shares are rated as Hold because of the market uncertainty. However, if the stock pulls back to below $36 consider taking a position. - G.P.