A 10% yield often spells trouble. And this 10% dividend stock is going through troubles. However, it has the resources to recover from these challenges and benefit from long-term secular growth. The stock in question is BCE (TSX:BCE). The telco has come under fire for several reasons. A restructuring of a giant like BCE made thousands of Canadians jobless. It even had a tussle with Prime Minister Justin Trudeau, who was furious about the layoffs.
Troubles at the 10% dividend yield stock
However, the decision was necessary as the radio business and electronics stores were not doing so well. As BCE has almost 30% share in Canada's vast telecom market, a company-wide restructuring will affect the country. At the same time, its significant investments in the 5G infrastructure also had country-wide implications. Many are connected to 5G.
The business restructuring has also pushed BCE into a net loss of $1.2 billion in the third quarter as it is impairing media assets. The company expects free cash flow (FCF) to fall 3-11% this year. All this comes after it paid 111% of its FCF in dividends in 2023 and increased its dividend by 3% in 2024. A higher dividend and lower FCF will probably increase the 2024 payout ratio beyond 120%, which is unsustainable.
BCE's dividend-growth pause
BCE needs money to complete the restructuring. The telecom company has paused its dividend growth for 2025 as it is focusing on reducing its debt and enhancing its free cash flow.
The pause in dividend growth was taken negatively by shareholders and sent BCE stock down 16% this month. The company made the right decision to prioritize debt reduction instead of straining its cash reserves to fund dividends. However, it made its dividend-reinvestment plan (DRIP) lucrative by offering to buy BCE shares at a 2% discount from the average price in 2025.
Why buy this 10% dividend yield stock for the long term?
BCE stock is at its 13-year low, which has inflated its yield to 10.5%. On top of this, BCE DRIP is offering a 2% discount on the average stock price. Even if the 3% dividend growth has vanished for the short term, it is partially offset by higher yield, a lower stock price, and the 2% discount.
A little over $5,000 investment today can buy you 133 shares of BCE. I am assuming the company maintains the same dividend for three years before returning to 3% dividend growth. However, it is a conservative estimate as BCE could accelerate its dividend growth after a pause to make up for years of no growth.
| Year | BCE Stock Price 3.2% CAGR* | Annual Investment | BCE DRIP Shares | BCE Share count | BCE Dividend per share (3% CAGR) | Total dividend |
| 2025 | $37.66 | $5,000.00 | 132.8 | 133.0 | $3.99 | $530.67 |
| 2026 | $38.87 | $530.67 | 13.7 | 146.7 | $3.99 | $585.15 |
| 2027 | $40.11 | $585.15 | 14.6 | 161.2 | $3.99 | $643.36 |
| 2028 | $41.39 | $643.36 | 15.5 | 176.8 | $4.11 | $726.54 |
| 2029 | $42.72 | $726.54 | 17.0 | 193.8 | $4.23 | $820.33 |
| 2030 | $44.08 | $820.33 | 18.6 | 212.4 | $4.36 | $926.07 |
| 2031 | $45.49 | $926.07 | 20.4 | 232.8 | $4.49 | $1,045.27 |
| 2032 | $46.95 | $1,045.27 | 22.3 | 255.0 | $4.63 | $1,179.60 |
| 2033 | $48.45 | $1,179.60 | 24.3 | 279.4 | $4.76 | $1,330.98 |
| 2034 | $50.00 | $1,330.98 | 26.6 | 306.0 | $4.91 | $1,501.53 |
| 2035 | $51.60 | $1,501.53 | 29.1 | 335.1 | $5.05 | $1,693.65 |
In 11 years, the BCE DRIP could grow your annual dividend payout more than threefold to $1,693. Moreover, a recovery in BCE's fundamentals and its focus on techno could pave the way for the 5G growth trend in artificial intelligence and cloud networking.
Final takeaway
I am confident about BCE's recovery, given its +50 years of successful business operations and a vast 5G infrastructure and market share. You could consider buying and holding the stock for the long term.
