Scotiabank: Dividend cut coming ?( From Scotiabank)

Dividend cut coming ?( From Scotiabank) Industry valu ations imply that the current dislocation in wireless pricing is expected to extend for another few years coupled with continued normalization in industry loading from lower immigration trends. We believe in the current environment, management teams need to maximize FCF conversion (QBR is excelling in this) and reducing leverage. It is hard to convince investors to pay up for acquired growth when the base business is showing weak growth and leverage is elevated. As we enter reporting season, the topics of discussions will likely center on: 1) how fast wireless sub growth is normalizing; 2) are companies starting to see a slowdown in enterprise spending from tariffs; 3) actions taken by management teams to maximize FCF generation and paying down debt. We could review our rating on BCE if the dividend is cut by 50% or more coupled with improved visibility on Ziply's capex spend and sustainability of organic FCF BCE... expecting catalysts. Bottom line, the dividend yield of 13% on BCE shares vs the company's FCF yield of 8% makes it unfeasible for the board not to take action to reduce the distribution ratio of the company. We believe a minimum divi cut of 50% is required, but a 55% cut would be better. We discussed this before in separate research, but we don't believe BCE has a FCF generation problem. Cutting the dividend, stopping the DRIP, immunizing the balance sheet from additional US expansion capex and some asset sales would go a long way to making us more positive on the stock given current valuations. It is likely many of those catalysts could be announced come earnings. Please see our note fro m December for more details. Tackling those issues should relieve significant pressure on the stock. As it relates to earnings, we believe the outlook on enterprise spending in the second half will be topical as we are hearing delays in IT project starts already while immigration will be a focus for the outlook on wireless and broadband loading. generation.