BCE (TSX:BCE), one of Canada's biggest telecom giants, has seen its stock face significant headwinds over the past two-and-a-half years or so. Once a darling of conservative investors, BCE's stock peaked at about $73 per share in April 2022. However, a combination of rising interest rates and stagnant growth has sent the stock into a tailspin, leaving many investors wondering about its future. So, what can we expect from BCE stock heading into 2025?

A struggling blue chip: What went wrong?

Historically considered a blue-chip stock, BCE has found itself struggling recently, especially in the face of a rising interest rate environment. The Bank of Canada began hiking rates in 2022 to combat inflation, making high-yield dividend stocks like BCE less attractive. This has particularly hurt BCE, which is a business with high debt levels. Like other telecoms, BCE invests heavily in its infrastructure and network, leading to sizable debt on its balance sheet.

While the company manages its debt well and is awarded a BBB investment-grade S&P credit rating, the bigger concern lies in BCE's growth (or lack thereof). BCE's adjusted earnings per share (EPS) for the past year was just $3.21 — basically flat since 2012. Despite this stagnant earnings growth, BCE has been increasing its dividend by around 5% annually. However, this growth in dividends has come at the cost of an unsustainable payout ratio that exceeds 100% now, which has raised concerns about the sustainability of its dividend payments.

What's next for BCE: Dividend cuts and stock upside?

The big question now is whether BCE can maintain its dividend in 2025. The company's stock has been the worst performer among the Big Three Canadian telecoms since its 2022 peak. Over the last 12 months, BCE's stock has declined 35%, fueling fears that the company may be in for a dividend cut. With the current yield hovering at an eye-popping 11.8%, a more sustainable payout ratio of around 70% could result in a dividend cut of nearly 50%. This would still leave BCE offering a solid forward yield of approximately 5.9%.

For new investors, this revised yield might not be such a bad deal, especially when compared to the current interest rates. At the recent share price of $33.81, BCE offers significant potential for upside. Analysts have set a target price of about $41, representing an estimated gain of 21% from current levels. Add in a safer dividend yield of 5.9%, and BCE could offer attractive total returns over the next few years — provided the company can stabilize its operations.

Strategic acquisition

In a move that could help BCE turn things around, the company recently announced its acquisition of Ziply, a fibre operator in the United States, for a transaction value of $7 billion. This acquisition, which includes taking on Ziply's $2 billion in net debt, positions BCE as the third-largest fibre internet provider in North America. This expansion into the U.S. market could provide the company with new growth avenues, potentially boosting both revenue and profitability.

However, the success of this acquisition remains to be seen. If BCE can effectively integrate Ziply and capitalize on its expanded fibre network, it may be able to generate growth in a sector that's critical for the future of telecommunications. This could be just the catalyst BCE needs to begin reversing its downward trend.

The verdict: Patience could pay off

Looking ahead to 2025, BCE appears to be in a period of transition. The stock may face some rough waters, especially if the dividend gets slashed. However, at its current price, BCE offers investors a high dividend yield and decent upside potential. If management can successfully execute its strategy, including its acquisition of Ziply, BCE could become a solid value play with the potential for both income and price appreciation.

For long-term investors willing to ride out some short-term volatility, BCE may be a stock worth watching closely as it seeks to recover in the coming years.