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MARKET COMMENT
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Can it really be under four years ago that BT (LSE: BT.A)(NYSE: BTY) shares were worth over £12 each? Crazy. Now, shorn of mobile firm mmO2 (LSE: OOM)(NYSE: OOM) and the Yell (LSE: YELL) directories business, the shares are worth just 20% of their former peak (if you add in mmO2). The rump of BT is just a boring old utility. If its share price grows at 6% per annum, it will take almost thirty years for it to reach its all-time high. To BT's credit, it has been swift to accept its shortcomings in the last few years and adjust its business accordingly. The rapid growth in broadband services, although it has exceeded BT's expectations, has not been enough to offset falling revenues in BT's core fixed-line business. Here the company is being hit from all sides, with the regulator capping prices, competitors taking a slice of the pie and the continuing shift away from fixed-line to mobile services. BT's solution is to return more cash to its shareholders. As a mature business, this is an eminently sensible approach. Its interim dividend was hiked by 42% and it has promised to pay out half of its earnings for this financial year. This means total dividends of around 8p for this year, barring any upsets. BT has said it will raise its payout ratio to 60% within a couple of years, which equates to around 10p. Assuming this year's dividend is 8p, the shares currently yield 4.4%. This puts it on a par with National Grid Transco (LSE: NGT), but some way behind the likes of Scottish & Southern's (LSE: SSE) 5.7%, Scottish Power's (LSE: SPW) 6.7% and the 8.5% offered by United Utilities (LSE: UU.). BT is also offering the additional carrot of a share buyback programme. The cost of this, and the higher level of dividends, will mean debt reduction will ease off over the next few years. BT is hoping to reduce its debts from £8.8b to £7b in three years' time. Its debt levels look manageable, although it seems strange to describe almost £9b of debts in that way! Overall though, it's difficult to see much in the way of value in BT at the moment. But the shares don't look overly expensive either. It seems most likely that they will drift around their current level for some time to come. Yawn!