December 17, 2009 / 1:22 PM / 9 years ago

UPDATE 3-BCE plans C$500 mln buyback, raises dividend

* BCE to repurchase shares

* Raises 2010 dividend to C$1.74 per share

* EPS seen at high end of forecast range

* Shares up 2.4 pct

(Adds additional background)

By Scott Anderson

TORONTO, Dec 17 (Reuters) - Canada’s BCE Inc (BCE.TO) plans to repurchase up to C$500 million of its stock and increase its dividend by 7 percent next year, lifting the share price of the Bell Canada parent.

It is the third time BCE has raised its payout and the second time it has bought back shares since a bid by a group of private-equity investors to take Canada’s biggest telephone company private collapsed late last year. Since then it has increased its dividend by 19 percent.

BCE, which raised its 2010 dividend to C$1.74 per share, repeated that it expects to meet the high end of its 2009 outlook range for adjusted earnings of C$2.40 a share to C$2.50 a share.

That said, it expects revenue growth to be at the low end of a 1 percent to 2 percent range.

The Montreal-based company also now expects to generate about C$1.25 billion to C$1.4 billion in free cash flow for the year, after a C$500 million special contribution to Bell Canada’s defined benefit pension plan.

It had earlier expected free cash flow in the range of C$1.75 billion to C$1.9 billion.

The announcements come as BCE, along with Telus Corp (T.TO) and Rogers Communications (RCIb.TO), girded for battle with a fourth big provider of mobile phone service in Canada.

Globalive launched service, with a limited selection of phones, under the Wind Mobile banner on Wednesday after the Canadian government overturned a regulatory ruling last week that had blocked the Egyptian-backed company.

BCE and Telus recently began offering Apple’s (AAPL.O) popular iPhone, breaking an exclusive arrangement enjoyed by Rogers.

Troy Crandall, a telecommunications analyst at MacDougall, MacDougall and McTier, in Montreal said the timing of the dividend hike was a surprise.

“The dividend increase was built in but it came a bit earlier and a bit better,” he said, noting many had expected the announcement in February, 2010.

The company said it would use its 2009 surplus cash balance for the pension contribution plan and the share buyback program, which is to be executed over the course of 2010.

BCE said the pension contribution would decrease its pension funding requirements and pension expense by up to C$75 million and C$45 million respectively in 2010.

“They had lots of cash and really they could do what they thought best for that. It’s always a trade-off between the company’s interests sand the shareholders interests and I think what they did demonstrates that they have a pretty good balance of both,” Crandall said.

A group of private-equity investors led by by the Ontario Teachers’ Pension Plan tried to take BCE private in a C$34.8 billion ($32.6 billion) offer, but the bid collapsed in December, 2008 on concerns that the company that would emerge from the buyout would fail a solvency test because of its huge debt load.

BCE’s shares, which have dropped more than 25 percent since the deal showed signs of unraveling late last last year, were up 2.4 percent at C$27.02 on the Toronto Stock Exchange.

(Additional reporting by Ashutosh Joshi in Bangalore)

$1=$1.07 Canadian Reporting by Scott Anderson;

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