Written by Joey Frenette at The Motley Fool Canada
Shares BC e. (TSX:BCE) have begun to retreat, down 13% from their late-May highs. It’s certainly becoming increasingly difficult to find high-value names in the telecom scene, even after cost-cutting efforts and a pivot to the lucrative AI infrastructure business.
As tempting as it may be to start building data centers using artificial intelligence and the like, there is a significant capital expenditure bill (CapEx) that needs to be funded up front before the cash flows in. And while expanding AI infrastructure appears to be the “way out” for many firms under pressure across a wide range of industries (how many cryptocurrency miners are moving into AI data centers?), I still think investors should tread carefully, especially in a market that appears to be punishing higher costs for AI-related efforts rather than rewarding them.
Artificial Intelligence Infrastructure Business Can Be Profitable
When BCE’s Bell joins forces with Canadian AI lab Cohere, things could get a lot more interesting as the telecom giant looks to help Canada get its AI infrastructure up to par.
While I do think AI computing could be a huge cash cow in a few years, especially as AI continues to experience off-the-charts growth while demand continues to overwhelm supply, I would brace myself for a little short-term pain and uncertainty before that big payoff can finally be realized.
Indeed, it costs a lot to get into this field, but if there is a company that can do it, it is BCE. The company previously cut its dividend and carried out layoffs and took other cost-saving measures. However, whether this is enough to make a big splash in Canadian AI remains a big question. In any case, the dividends look more than safe. However, it remains unclear how it can grow as BCE spends to expand its presence in artificial intelligence infrastructure. In short, expect safe payouts and modest growth over the long term.
Spend money to make money
For now, investors seem to be a little more cautious, especially since many are a bit allergic to capital expenditures these days, especially related to something as uncertain as artificial intelligence infrastructure. While the business of cell towers and the like was considered more stable, I’m not sure how wide the moat will be in ten years’ time when satellite communications become better and more widespread.
Indeed, the position of Canadian telecom companies is becoming increasingly uncertain, and while I understand why investors would want to sell now despite ongoing efforts to improve future cash flows, I still think valuations are getting too low. Even though there are plenty of challenges ahead, I certainly wouldn’t dare bet against this company even as the negative momentum picks up again and the stock falls back below $30 per share.
One of the most profitable yields around 6%?
The stock trades at a price-to-earnings (P/E) multiple of 4.4 times with a dividend yield of 5.8%. Not bad for a former market darling. Of course, the telecom industry is still struggling, and with artificial intelligence data centers added to the mix, it’s hard to say what will be left after capital expenditures are spent, operating expenses are cut, and new cash flows are generated.
The post BCE Stock Dividends: What’s Happening Now? first appeared on The Motley Fool Canada.
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Fool, participant Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has disclosure policy.
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