BCE Inc. is raising its dividend by five per cent and using surplus cash to bolster its balance sheet as the telecom giant predicts strong growth ahead.
The Montreal-based telecommunications company and parent company of Bell Canada, said Thursday it will boost its annual dividend by five per cent to $2.17 per share for 2012. It's the seventh increase in the past three years, and payouts will begin in BCE's first-quarter payout, on April 15 next year.
"This reflects our confidence in delivering on our business plan, based on the Bell team's strong execution of our strategic imperatives and reinforced by a healthy balance sheet with ample liquidity," president and CEO George Cope said in a statement.
"We have the financial flexibility to reward shareholders, while supporting significant ongoing capital investment in Bell's broadband networks and services."
In addition to the dividend hike, the company will also buy back as much as $250 million worth of its own stock in a move designed to increase its share price and it plans to make a voluntary $750 million voluntary payment on its defined benefit pension plan.
Because it is tax deductible, the pension payment will provide BCE with about a $170-million boost to its free cash flow. It will also add an estimated three cents to adjusted earnings per share next year as it reduces expenses booked against earnings.
"The new share buyback program and voluntary pension contribution represent a well-balanced use of surplus cash," said chief financial officer Siim Vanaselja.
"In a financial climate of declining interest rates and weak equity returns, accelerating the cash funding of Bell's future pension obligation to preserve a strong solvency position in the pension plan is a prudent action."
BCE said Bell Canada's expected revenue growth will remain unchanged from prior guidance at between nine and 11 per cent, while the parent company's adjusted earnings per share should rise to a range between $3.10 and $3.15 from earlier guidance of $2.95 to $3.05.
UBS analyst Phillip Huang said BCE is continuing its "annual tradition" of raising its dividend.
"We believe the dividend increase and special pension contribution announcements are largely expected, but the buyback is a positive surprise," Huang wrote in a research note.
Huang called the special pension contribution financially attractive for BCE.
"Obviously, the voluntary funding will also reduce future pension funding and expense in the longer term."
But he said he considers the increased dividend of $2.17 at the low end of BCE's payout policy.
Huang said he expects earnings per share in fiscal 2012 to remain unchanged at his estimate of $3.25.
BCE is Canada's largest communications company, and a longtime staple in investment portfolios designed to profit from steady growth companies with a solidly dependable dividend. Aside from wireless and landline telephone services, broadband Internet and satellite TV, it also owns a stable of media properties including the CTV television network.
Shares in BCE were up 25 cents to $40.43 in morning trading on the Toronto Stock Exchange.
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