Perhaps the most widely held common shares in Canada are the shares of Bell Canada Enterprises, BCE which also trades in the US under the same name, BCE. It is often referred to as shares for retirees and widows due in large part to its low risk. Shares of BCE are not usually, if ever, acknowledged for instilling excitement in one’s investment activities. Boring is a more apt way of describing the stock, yet, BCE shares form the core holdings of probably more funds in Canada than any other stock.

Safety of investment capital and secure increasing dividends are the key factors attracting such wide interest. BCE operates a multitude of business assets, it’s largest being Bell Canada, one of Canada’s leading Telecommunications companies. Within BCE, they also control assets such as Maple Leafs Sports and Entertainment which operates many of the largest Sports teams within Canada as well as assets like Bell Media, producing original content for Canadian consumers.

Assuming a market price of $48 , the annual current dividend of $2.47 per annum payable in the amount of $0.6175 per quarter year means a nominal rate of 5.146% per annum payable or calculated quarterly.

Actually, this translates into an effective rate of 5.246% per annum. This means that $1 invested for one year at an effective rate of 5.246% per annum will earn $0.05246 interest for the year and paid at the end of the year. If we invest $1 for one year at a rate of 5.146% per annum calculated (compounded) quarterly this means that the amount of interest earned for the year is also $0.05246. See Figure 1 below.

Holding the common shares outside a registered plan also gives you the dividend tax credit which can bring your effective yearly rate over 6%. Institutions such as life insurance companies use interest rates and mortality tables to calculate the cost of a whole life annuity. A whole life annuity without any other features, is a pension with fixed amounts paid periodically to a person for as long as the person is alive. Upon the death of the annuitant, the fixed payments stop and no further of any amounts are paid. At present, a rate of 5% is used by institutions to calculate the cost of an annuity, which can be considered on the high side. Most annuities however are calculated with lower rates.

For example, a male aged 65 would now most likely be charged $100,000 by a major financial company, for a whole life annuity which would pay monthly amounts of approximately $540 for as long of the person is alive. This is approximately $6480 per annum. The amounts vary depending on which company you are buying the annuity and the payments would be less should you want an annuity with a minimum guaranteed period for which the payments will be made regardless of whether or not are the annuitant is alive.

In all probability buying $100,000 worth of common shares of BCE will give you, at least, approximately the same benefits over your lifetime and leave to your estate your capital intact upon your death. In fact, the chances are high that over your lifetime the investment in BCE will be more beneficial than an annuity. Remember that the annuity payments do not change, unless a separate feature to such effect is agreed upon for an additional cost.

BCE, as do many other companies, has a Dividend Reinvestment Plan (DRIP). The DRIP allows eligible holders of BCE common shares to acquire additional common shares through reinvestment of the cash dividends paid on their respective shareholdings. Participants in the Plan may also make Optional Cash Payments, in the form of cash or dividends on BCE preferred shares, to purchase additional common shares subject to certain restrictions.

We should also consider other logic on the validity of investing in BCE. We will now make some conservative projections regarding the future performance of the shares as follows.

Assume you pay $48 for one common share of BCE and the first four quarterly dividends you receive are $0.6175. Assume the dividends increase by 5% yearly, paid quarterly. Now assume that at the end of 5 years the shares are still at the market price of $48 and you sell your shares for $48. The question now is, how has your investment performed over those 5 years. We will assume the dividends have been invested at a nominal rate of 5% per annum compounded quarterly, i.e. an effective rate of .05/4=1.0125% per quarter. Also assume that none of the principal nor interest has been withdrawn.

How much is your total accumulated amount at the end of 5 years and what is the effective yearly rate earned? To answer this, we look at table 2.

Under the superb leadership of Chief Executive Officer, George Cope (seen below), BCE has consistently performed exceptionally well, leading it to be one of the most widely held equities from the Canadian market.

Of course, there is a high probability that your return from an investment in BCE will be much higher than that discussed here. The point of this analysis, based on the history of BCE, is to obtain a likelihood minimum return assuming a very conservative economic performance over at least 5 years. Long term BCE bonds, held by many funds, yield much lower returns than anticipated from the common shares. Again, this is because of the low risk , stable performance and reliability that even in a sluggish financial environment, BCE still consistently produces solid results.

-M