Yahoo Finance If You’d Invested $2,500 in BCE Stock in 2003, Here’s How Much You’d Have Today
Written by Andrew Button at The Motley Fool Canada
BCE (TSX:BCE) stock has seen significant price appreciation over the last 20 years. From the start of 2003 to today, it has risen 88%. That’s behind the market, but BCE has a very high dividend yield — 6.31%. On a total-return basis, BCE may have done better than it looks. In this article, I will explore BCE’s dividend history to determine exactly how much an investor would have made by buying the stock in 2003.
The process for finding returns on reinvested dividends
To determine the total return on a stock, you need to know not only the price return, but also the return from dividends. Large-cap stocks like BCE often pay dividends, so it’s important to factor them in.
Dividends can either be paid to you as cash, or reinvested. If you reinvest your dividends, and the stock price goes up, you maximize your returns. If, however, the stock price goes down over your holding period, you maximize your return by collecting cash dividends. BCE’s stock has risen over the last 20 years, so we need to know the return with dividends reinvested. This is a little more complicated than just tallying up cash dividend payments, as you need to factor in how much each dividend grows after being used to buy more stock.
The process for finding a dividend stock’s total return with dividends reinvested works like this:
Find the price return.
Calculate how many shares each dividend buys and at what price.
Add the returns from the reinvested dividends to the price return.
These steps are pretty tedious to go through by hand. Fortunately, they can be done easily by software.
You would have $8,902 today
If you’d invested $2,500 into BCE stock on January 2023 and held it to today, you’d have $8,902, or a 256.1% return. Assuming dividends were reinvested, of course. This is pretty remarkable because the return had there been no dividends would only have been $4,700 or 88%. By reinvesting your BCE dividends, you would have nearly doubled your return!
This is not surprising when you consider BCE’s history. BCE stock has always had a pretty high yield. In 2003, the yield was 3.6%, which is not high compared to the current 6.31% but is still fairly high compared to most stocks. As the years went on the yield steadily climbed, as the dividend grew more than the stock did. As a result, investors were able to amplify their returns considerably by re-investing their BCE dividends.
Foolish takeaway
BCE stock is a classic case of the importance of dividends. If you go solely by price return, it looks like a dud of a stock that underperformed its benchmark. But if you include dividends in the picture, then you’ll see that it has performed rather well.
Is BCE a buy today?
If you like high dividends, perhaps. The company’s earnings have been declining in recent years, but it still has high enough profit margins to pay ample dividends. Taking a broad view of things, the signals this stock gives off are pretty mixed. Perhaps a small position in a well diversified portfolio would be ideal.
The post If You’d Invested $2,500 in BCE Stock in 2003, Here’s How Much You’d Have Today appeared first on The Motley Fool Canada.
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Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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