Weaker Q2 results from US communications giants apparently led some investors to assume the same for BCE Inc (BCE), observess Roger Conrad, editor of Conrad's Utility Investor.

That didn’t happen, as the company posted solid numbers and affirmed 2022 guidance for growth in revenue, EBITDA, earnings per share and free cash flow.

The upshot: Conservative investors have an opportunity to lock in a safe yield of nearly 6 percent with Canada’s best in class telecom. And with the company’s wireless 5G and fiber broadband offerings accelerating and CAPEX starting to wind down, that dividend is set for reliable mid-single digit percentage growth to at least mid-decade, even if North America does hit a deeper recession.

BCE has stayed on course for two main reasons. First, management has been able to effectively control costs despite inflation pressures, with Q2 operating expense rising just 1.5 percent from a year ago. Interest expense was even flatter, up just 0.4 percent despite rising rates. And overall EBITDA margins increased 120 basis points, reaching 46.7 percent of revenue.

Second, the company has continued to add new customers at a robust pace. Q2 retail Internet activations were 27.9 percent ahead of last year, powering an 8 percent lift in residential revenue. Wireless additions were more than double Q2 2021 levels, as management converted more users to 5G while expanding its network.

It’s likely the company owes some of these gains to the failure of Shaw Communications’ (SJR) Freedom Mobile brand to develop into a fourth major Canadian wireless competitor. That could start to change later this year if regulators approve Shaw’s merger with Rogers Communications (RCI) and the corresponding sale of Freedom to Quebecor Inc. (QBCRF).  

But BCE’s Q2 results — including record low wireless churn — demonstrate pretty clearly that its converged fiber/5G network has a huge lead, particularly in the eastern and central Canada markets it’s traditionally served. And it’s set to build on that by continuing to outspend rivals, including a CAD650 million fiber partnership announced this month with the government of Ontario to serve rural areas.

Buy BCE up to my highest recommended entry point of $55. Note that dividends are paid in commodity price-sensitive Canadian dollars, providing investors a modest long-term inflation hedge.

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