Adding To My Bell Canada Position

Bell Canada (BCE) is a Canadian telecommunications company. It is the largest of the “Big Three” comprising Bell, Telus (T), and Rogers (RCI.B).

Already having a sizeable allocation to Bell within my portfolio, I decided recently to add to my position with additional funds as opposed to only the reinvested dividends the company sends me. My current purchase will add roughly 25% more shares to my Bell position.

So why did I do it?
Bell is currently trading at around $42 per share and yields just over 5.5% at the moment in the form of a quarterly dividend. In the current environment, I am quite content to acquire more shares of a very solid performer in Bell with future growth prospects that I believe to be appealing, at a price that is reasonable.

Over time, I expect Bell to continue increasing its dividend at least once per year. With a starting yield of 5.5% and reinvested dividends, even modest annual dividend growth in the 4-7% range will produce a sizeable future cash flow fifteen or twenty years down the road.

In addition, the money I used to increase my position came from dividends that were accumulating in my account already from dividends from other companies. This means that I did not need to add additional funds to my brokerage account to pay for these shares. In effect, this allowed me to “play with the house’s money” while increasing my stake in a quality enterprise.

How did I do it?
Bell had been trading just slightly above the price at which I wanted to pay for it over a period of a few weeks. I wanted a starting yield of 5.5% for my new shares, so I simply set a limit price that would make this possible and waited. I set the expiration on the order a month out, after which time I would re-evaluate if Bell shares never dropped below my target. If the order expired, I would have missed out on acquiring more shares (or I could have just opened a new contract at that time). This was not a real concern of mine, as the stock market tends to gyrate significantly enough to give the patient investor the opportunity to shop at a bargain.

Having now added to my position in Bell, I do not foresee any future additions in this sector for some time. I will allow my dividends to continue reinvesting themselves to passively grow my stake, but new funds will not be provided.

Risks to my assessment?
Verzion (NYSE: VZ), the behemoth telecom from the U.S. has been eyeing the Canadian marketplace. It has expressed interest in purchasing Wind Mobile and Mobilicity here in Canada. Assuming it was able to dip its fingers into Canada (amid protests from Canada’s Big Three), this would be viewed as a serious threat to the current establishment. If Verizon comes to Canada, I would expect each of the Big Three companies to take a hit on the stock market as analysts revise their estimates downward in light of a fourth large competitor in the marketplace.

Even with the knowledge that Verizon may attempt to invade Canada, I still feel comfortable investing in Bell. The thing with the future is that it is always uncertainty. The investor who waits to have all the facts about what is going to happen will live forever on the sidelines. Bell is a solid company now and still would be if Verizon arrives on the North side of the border. If Verizon decides to stay at home, then that will only further strengthen the bet I have made on BCE.

Full Disclosure: Long BCE