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(B)(N) BCE (Bell Canada) Incorporated

August 20, 2016
Amen - The Fundamentals

The Fundamentals

Drama. Canadians pay too much for their telephone, wireless, and internet services, and that debate about what we “should” pay has been going on for quite a while and it flares up every year to make a splash in the headlines that puts it out for another year (CBC News, March 23, 2015, Internet, phone bills in Canada too high, says consumer study).

The average bill for a cell phone that works most of the time and an internet service with middling speeds, most of the time, is $150/month or $1,800 a year which they get from us in “affordable megabits” and bigger “byte-size” chunks, so to speak.

The gross revenues of the five biggest carriers (BCE, Cogeco, Rogers, Shaw, and Telus) were $56 billion last year and that’s about $1,800 for each “Canadian Household” (as above) which we estimate to be about 15 million “households” including individuals who are a tax-paying, consumer household of one which can afford a telephone and an internet connection, so the rest ($29 billion) is coming from business users and some consumer entertainment packages that they own.

On those revenues, they earned $6.7  billion and they gave 73% of it ($4.9 billion) to their shareholders who mostly don’t have anything to do with the business, for a current dividend yield of 3.9% and a return on the shareholders equity of 17.5% and a return on their assets of 5.4% .

Which almost makes them worth “owning”, like all of it, and that’s our problem for today – how are we going to buy Bell Canada with a low down payment and we won’t be the first to try even though the last group had the cash to do it (IT World Canada, December 10, 2008, BCE takeover deal scuttled).

A New Kind of Activist Shareholder

But we don’t really want to own all of it – we don’t want to own the Toronto Blue Jays (no offence intended – let’s play ball) or the broadcast rights to Hockey Night in Canada or the Rogers Center, and so forth. – all that we really want is a good cell phone and telephone service and a good internet service at the right price and to get all of that, all that we need to do is “control” Bell Canada and tell them to stop paying shareholder dividends, $2.4 billion last year on gross sales of $22 billion and earnings of $2.7 billion, most of which they “gave” to their shareholders, and plow the money back into the business to help it grow and provide better rates and services for their customers and not their shareholders and ersatz “owners” who don’t care about the millions of Canadians who, at this very moment, are waiting for a dial-tone or a download.

That might kill the stock price for a while, but so what? It dies every now and then anyway (please see Exhibit 1 below) and all that we want is a large enough block of votes, in shares or by proxy, to always vote “no dividends” and “no takeovers” and the worth of our investment will depend only on what other investors are willing to pay us for our stocks, should we ever want to sell any for an income, and that price is likely to increase because “our company” is producing great services and taking the market share away from the other guys who aren’t keeping up and who are giving all of their money to the shareholders every year and not their customers.

It’s natural for us to look at the employee pension plans for this initiative and the money to do it because they’re under-performing in their other investments and they rely on these companies to top-up their pensions and to create jobs for more workers and not fewer workers.

For example, the Bell Canada Pension Plan has about 73,000 members, assets of about $14 billion (estimate) and pays-out about $1 billion a year in benefits but had an essentially zero investment return in 2011, 8.2% in 2012 that they can’t explain, and 1.6% in the first six months of 2013 (Bell Canada Pension Plan 2012 and thereafter, this information goes dark).

But Bell Canada returns 5.6% on its assets and 16.5% on the shareholders equity and it paid 83% of its earnings last year to “shareholders” – that’s $2.4 billion (and about 10% of our phone bill across all household services) and a current 4.4% yield – and we can expect the stock price to increase every year because the other shareholders aren’t going to let us get more of those stocks, and maybe all of those earnings if we own all of those stocks, at a cheap price and they can’t move the “fixed block” anyway which could be owned by the Bell Canada employees pension plan, for example, and which is looking out for its interests and the interests of the employees in a better, richer, working environment  (The Toronto Star, March 31, 2007, End of retiree medical plan shocks Bell employees).

Is $14 billion enough to takeover Bell Canada which has a current market value of $55 billion?

It’s difficult but far from impossible for the fertile mind, and the Bell Canada Pension Plan and other like-minded plans which are also “tired” of their pathetic investment returns can start accumulating shares now at the market price and collect their dividends until the day of reckoning.

Searching for the money

Where’s my money?

That leaves us with the delicate problem of how to pay our pensioners if we don’t have any dividends, but the solution to that problem is even easier; please see Exhibit 1 and 2 below for a heads-up on how we do that (and click on it and again to make it larger as required).

Exhibit 1: A New Kind of Activist Shareholder

Exhibit 1 (B)(N) Telcos - A New Kind of Shareholder Activism

TGX BCE Incorporated

Figure 1.1: BCE BCE (Bell Canada) Incorporated (B+)

TGX CCA Cogeco Cable Incorporated

Figure 1.2: CCA Cogeco Communications Incorporated (B+)

TGX RCI.B Rogers Communications Incorporated Class B

Figure 1.3: RCI.B Rogers Communications Incorporated Class B (B+)

TGX SJR.B Shaw Communications Incorporated Class B

Figure 1.4: SJR.B Shaw Communications Incorporated Class B (B+)

TGX T Telus Corporation

Figure 1.5: T Telus Corporation (B+)

Exhibit 2: How do we pay for all that – Cash Flow Summary

Exhibit 2 How do we pay for all that
For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel,  Green Energy and The Coal War; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that.

And for more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.


We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
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For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to


Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.



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