Low volatility with an attractive dividend yield
ECB (EAST: ECB) (ECB), formerly Bell Canada Enterprises Inc., is Canada’s largest communications company. The company provides advanced broadband communications networks, wireless, wireline and Internet services to residential, business and wholesale customers nationwide.
It also offers television (TV) services, including conventional television, specialty television, pay television and streaming services, as well as digital media, broadcasting and outdoor advertising services.
BCE is a defensive stock that held up quite well during the first half of a volatile market. Indeed, the stock has only fallen about 1% since the start of the year including dividends. Additionally, the company operates efficiently while providing investors with an attractive dividend yield.
Measuring BCE’s effectiveness
BCE needs to keep a lot of inventory to keep its business running. Therefore, the speed at which BCE can move inventory and convert it into cash is very important in predicting its success. To measure its effectiveness, I will use the cash conversion cycle, which indicates the number of days it takes to convert inventory into cash. It is calculated as follows:
CCC = Current Inventory Days + Current Sale Days – Current Payment Days
BCE’s cash conversion cycle is -26, which means the company converts inventory to cash before it has to pay suppliers. Essentially, BCE doesn’t have to invest money to fund inventory purchases because it can move inventory and collect payments while still on credit. Thus, BCE’s suppliers essentially finance its operations.
In addition to the cash conversion cycle, let’s also look at BCE’s gross margin trend. Ideally, I would like to see a company’s margin increase every year. This, of course, unless its gross margin is already very high, in which case it is acceptable that it remains stable.
In the case of BCE, its gross margin has improved over the past few years, from 41.8% in fiscal 2018 to 43.5% in the past 12 months. This is ideal because it allows the company to increase its free cash flow or reinvest a larger percentage of its income in growth initiatives.
For income-oriented investors, BCE pays a dividend yield of 5.8% on an annualized basis. Looking at BCE’s historical dividend yield, you can see that it has remained relatively stable:
At 5.8%, the current yield is at the low end of the range, indicating that income-oriented investors are paying a premium over returns they may have achieved in the past.
BCE has a consensus Hold rating based on two Buys and eight Holds awarded over the past three months. BCE’s average price target of C$68.60 implies upside potential of 8.4%.
Although analysts have a neutral view of the company, it is an efficient operator with an attractive return. Therefore, BCE is likely a good choice for investors who want to receive income without the volatility of the overall market.