BCE Expands Into the U.S. but Pauses Dividend Growth

• BCE announced a major acquisition of Ziply Fiber for $5 billion, expanding its North American fiber footprint to over 12 million locations by 2028.
• Financing includes proceeds from BCE’s MLSE stake sale, a discounted dividend reinvestment plan (DRP), and a term loan facility, but dividend growth will pause until financial targets are met.
• BCE stock, now down 23% year-to-date and at a 12-year low, yields a high 10%, raising concerns for dividend-dependent investors.

Strategic Expansion in the U.S. Market

BCE has agreed to acquire Ziply Fiber, a leading fiber Internet provider in the U.S. Pacific Northwest, for approximately $5 billion in cash plus $2 billion in assumed debt, bringing the transaction value to $7 billion. This acquisition significantly bolsters BCE’s North American presence, positioning Bell Canada, its wholly owned subsidiary, as the third-largest fiber Internet provider in the region. Ziply Fiber, serving over 1.3 million locations with plans to reach three million by 2028, will operate as a standalone entity post-acquisition, headquartered in Kirkland, Washington.

CEO Mirko Bibic emphasized the strategic value, stating, “This acquisition marks a bold milestone in Bell’s history as we lean into our fiber expertise and expand our reach beyond our Canadian borders.” By integrating Ziply’s network, BCE aims to capitalize on growth opportunities in an underserved U.S. market, while adding critical fiber infrastructure in response to increasing Internet demand across North America.

Dividend Pause and Financial Adjustments

BCE intends to use $4.2 billion from its recent sale of Maple Leaf Sports & Entertainment (MLSE) and additional funding via a discounted DRP to finance the acquisition. However, to support the acquisition and manage debt, BCE will suspend dividend growth until its payout and leverage ratios return to targeted levels, marking a shift from its previous annual dividend increases. The company’s substantial 10% dividend yield has historically attracted income-focused investors, but the high yield now reflects market concerns about BCE’s leverage and future dividend stability.

To further strengthen its balance sheet, BCE is modifying its DRP, allowing shareholders to reinvest dividends in new shares issued at a 2% discount. This adjustment is intended to conserve cash for growth initiatives and reduce debt.

Investor Concerns and Market Reaction

The acquisition news has weighed heavily on BCE’s stock, which is down 23% year-to-date and currently trades at a 12-year low. Investors relying on BCE’s dividend stability may find the pause in dividend growth disappointing, especially as BCE’s financial flexibility is tested by this large-scale acquisition. However, the strategy aligns with a longer-term vision to sustain North American growth through expanded fiber assets, positioning BCE to address rising demand for high-speed Internet and data services.

Investor Outlook

BCE’s expansion through Ziply Fiber is a transformative move, providing substantial growth potential and U.S. market exposure. While the high dividend yield is attractive, dividend-focused investors may face uncertainty as BCE prioritizes debt management and financial stability over immediate income growth. This acquisition strategy may appeal to investors looking for future-oriented telecom growth but could be less suitable for those primarily focused on dividend reliability in the near term. The company recently reported underwhelming earnings numbers as well, making its current situation even worse.