Telecom company BCE Inc. BCE-T +6.79%increase has cut its dividend by more than half, marking a long-anticipated departure from its extended history of steady payout growth.
BCE is reducing its annualized dividend to $1.75, or $0.4375 quarterly per common share, from a $3.99 annualized common share dividend. This represents a 56 per cent drop.
BCE has been distributing to shareholders more in dividends than it has been earning in free cash flow, while also balancing the weight of more than $30-billion in long-term debt.
“What we’ve heard from discussing this with shareholders and investors, the message is to focus in the near term on lowering debt,” said BCE president and chief executive officer Mirko Bibic in an interview Thursday morning.
“We wanted to give ourselves the flexibility to invest for growth, because our job in the short, medium and long term is to grow this franchise with the view of driving total shareholder returns,” he added.
In a call with investors, Mr. Bibic acknowledged competitive and inflationary pressures, heightened macroeconomic uncertainty, a slowdown in immigration and the higher cost of capital given the decline in BCE’s share price.
The company’s share price fell 35 per cent in the year leading up to the dividend cut, as investors balked at the company’s high payout ratio and acquisition spending.
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Until the dividend cut, the widely held shares were yielding 13.6 per cent, which was broadly seen as unsustainable for the company. This will now fall to about 6 per cent.
Mr. Bibic said the company expects to use the majority of the cash saved to pay down debt, with an initial goal of reaching a 3.5 net debt to EBITDA ratio by 2027.
“When we get there, we’ll have the flexibility to consider other ways to return capital to shareholders,” Mr. Bibic said.
The company also ended the discount on its dividend reinvestment plan.
In a note to investors Thursday morning, Scotiabank analyst Maher Yaghi said that management “should be able to regain investor confidence in the long term” now that it has indicated a clear line of sight towards material organic deleveraging in the years to come.
To further this goal, Mr. Bibic said Thursday that the company has launched two additional formal processes for divestitures. BCE’s executives said last quarter that they were assessing potential non-core assets to sell to pay down debt, including its telecom infrastructure.
Part of the company’s debt is related to the company’s proposed acquisition of U.S.-based Ziply Fibre, which would see BCE pay $5-billion for the company and hundreds of millions in capital expenditures building out Ziply’s network.
BCE also announced Thursday that it has struck a partnership on Ziply with PSP Investments that will see the Ottawa-based pension plan invest US$1.5-billion to expand the fiber network from 1.3 million to up to 8 million potential customers.
The deal will add improve the company’s free cash flow by $1-billion between 2026 and 2028, Mr. Bibic said.
PSP Investments, a public sector pension fund with $265-billion in assets, will own a 51-per-cent equity stake in the new Network FiberCo business, to build of fiber infrastructure outside of Ziply’s incumbent footprint.
BCE will continue to own 100 per cent of the existing Ziply business, which has a potential base of 1.3 million customers. The PSP investment is expected to grow Ziply’s network from 1.3 million to up to 8 million potential customers.
“We see this transaction as essentially reducing BCE’s exposure to the Ziply venture. Canadian telecom investors have been lukewarm to news of changes in infrastructure ownership structures recently, but de-risking the project could be well-received,” said Desjardins analyst Jerome Dubreuil.
The telecom is acquiring the fibre company for $5-billion, and previously said it expected to spend hundreds of millions expanding Ziply’s network in the northwestern U.S.
PSP Investments and BCE will share in the cost of expanding the network to a potential 8 million customers, with the pension plan agreeing to “a potential commitment in excess of US$1.5 billion” for the project.
Adding PSP as a majority owner in Ziply’s expanded platform dramatically lowers BCE’s future capital spending, resolving a major concern for investors.
PSP Investments first invested in Ziply in 2019, alongside four other institutional investors, then agreed to sell the company to BCE in November, 2024.
In its first quarter, the company has net losses of 596 mobile customers, versus analyst consensus of 7,700 adds. Internet net additions of 9,500 missed consensus of 23,600. Revenue was $5.9-billion, down one per cent from last year.