BCE dividend likely on hold for three years while company prioritizes growth areas

BCE Inc.’s BCE-T Bell Canada executives are not currently planning to increase the company’s dividend for the next three years, and instead will be focused on funding the company’s emerging divisions and paying down debt.

Those are things investors want the company’s executives to prioritize, chief financial officer Curtis Millen said in an interview on Tuesday after Bell’s first Investor Day in more than a decade.

During the four-hour event, Bell executives laid out plans to pivot the 145-year-old technology company toward high-growth areas such as artificial intelligence and fibre internet expansion, while paying down the company’s $32-billion in long-term debt. For the short term, that means dividend growth is not a priority.

“The opportunities we have to deploy capital, whether by deleveraging or funding growth, are more interesting to shareholders than bumping up the dividend a little bit more,” Mr. Millen said.

The retail-investor stalwart stock now yields 5.3 per cent, still high among large-cap companies but down from 13 per cent this spring. In May, executives halved the payout – widely seen as unsustainable – in order to allocate that cash elsewhere.

BCE stock on the Toronto Stock Exchange was down roughly 2 per cent Tuesday, and down 2.3 per cent year-to-date. It dropped 36 per cent in 2024, representing a 30-per-cent shareholder loss when factoring in dividend payments.

Was BCE’s dividend cut a buying opportunity? It’s increasingly looking that way

The company continues to grapple with slow growth. It provided three-year guidance Tuesday, including a compound annual revenue growth rate of between 2 and 4 per cent, with a slightly lower growth rate for adjusted EBITDA, earnings before interest, taxes, depreciation and amortization.

It’s betting on a number of strategies to underpin that growth. Among them: The telecom is expanding its internet offerings into Western Canada for the first time, using the government’s mandated fibre-sharing framework to offer service bundles to millions of new potential customers over rival Telus Corp.’s T-T network.

Over the past several years, there has been fraught debate within the telecom sector that saw Bell, which opposed network sharing, split from its rival Telus, which was in favour and moved into Bell’s territory in Ontario and Quebec starting last year.

While the profit margins on internet service alone are likely to be modest, it opens up the opportunity for Bell to approach the 3.4 million homes and businesses connected to Telus’s fibre network, bundling wireless plans with internet and streaming packages.

“We’ll do it in a way that makes sense for the consumer, that protects and grows our wireless base, and that’s financially disciplined for Bell and our investors,” Bell chief executive officer Mirko Bibic said in an interview.

Meanwhile, the company is betting big on its enterprise division, which provides services to other businesses.

On Tuesday, the company increased its artificial intelligence services target to $1.5-billion in revenue by 2028, citing “substantial momentum,” from the previous target of $1-billion in 2030, though this earlier guidance did not include revenues from its cybersecurity and artificial-intelligence divisions, Bell Cyber and Bell AI Fabric.

The company is expecting speedy takeoffs for all its enterprise layers, projecting annual growth over the next three years of 11 per cent at Bell Cyber, 33 per cent from Bell AI Fabric and 40 per cent at Ateko, its technology consulting brand.

At $1.5-billion, the AI division will still only make up a small portion of the company’s 2028 revenue, which analysts estimate will land around $27-billion.

However, one big advantage is that the enterprise segment is capital light, Mr. Bibic said.

The major expense for this division is the company’s $300-million investment in the first 100 megawatts of compute capacity (the company is planning for 500 megawatts total capacity), he said. This investment is expected to return between $100-million and $150-million in EBITDA.

The other area it’s targeting for growth is Bell’s U.S. internet business, Ziply Fiber. While investors initially balked at the prospect of added spending, earlier this year, Bell addressed those concerns by bringing on partner PSP Investments to share the capital burden of network building.

Bell executives have said the company would consider acquiring U.S.-based “mom and pop” companies to unlock more growth, but not if doing so would endanger the company’s goal of 3.5 times net debt-to-EBITDA leverage ratio by the end of 2027, which it reiterated Tuesday. The company is aiming to approach three times leverage in 2030, down from an expected ratio of about 3.8 by the end of 2025.

“Anything we do in any area of the business – M&A, building fibre, investing, or otherwise – will be within those commitments,” Mr. Bibic said.

In order to help reach this target, Bell executives said Tuesday they plan to realize about $1.5-billion in cost savings.

This is on top of the $7-billion in non-core assets that executives said in February it had identified for possible sales, including the August divestiture of its $4.7-billion stake in Maple Leaf Sports & Entertainment, the planned sale of northern telecom Northwestel for $1-billion and the sale of its legacy home-security business for up to $170-million.

This still leaves the company with more than $1-billion in divestitures yet to announce if it is to reach $7-billion.

Mr. Bibic said the company is “working on files” that could get it to that amount. But he made clear that Bell does not immediately have plans to sell its own towers. In recent months, Rogers made $7-billion selling a minority stake in part of its backhaul infrastructure, and Telus netted $1.2-billion on a tower deal.

BCE may have to contend with another challenge down the line: As of June, a year after announcing the sale of Northwestel, the buyer – Indigenous coalition Sixty North Unity – had yet to raise the $1-billion it has committed to pay, and said it was still seeking support, including the possibility of loan guarantees from the federal government. The group did not respond to a request for an update.

Mr. Bibic said Bell’s “Plan A” is to help Sixty North Unity secure the funding, but that he does not know the status of those arrangements.

Editor’s note: A previous version of this article stated that Bell had increased its Bell Business Markets target to $1.5-billion. The $1.5-billion target is for the company’s artificial intelligence solutions revenue, which represents a portion of Bell Business Markets.