Buy Both Income And Growth With BT plc And Sky plc

BT plc (LON: BT.A) and Sky plc (LON: SKY) provide a unique combination of high yield and growth.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Let me ask you a question. Is competition a good thing?

Erm, I hear you reply, of course it is. If you don’t have competition, then one company will dominate the market, set any price it wants, and it’s the customer that ultimately suffers. That’s why we have bodies like the Competition and Markets Authority, to prevent this sort of thing from happening.

Sounds fairly obvious, doesn’t it? Except dig a little deeper and you find that competition can, sometimes, actually be a bad thing.

Monopolies aren’t all bad

Take the pay-TV market. For the past 25 years Sky (LSE: SKY) has monopolised the sector. No other firm has managed to get anywhere near Sky, and the company has been the sole supplier of live Premier League football, cricket, golf and a range of other sports. It’s also been a key provider of movies from all the major Hollywood studios. It sounds like a recipe for rising prices and lowering standards. But actually, it means that we have in Britain the best pay-TV platform in the whole world.

By being sole supplier, Sky has built up a critical mass of customers, which means it has unrivalled buying power. And most people it seems, myself included, wouldn’t choose any other pay-TV platform. By being unencumbered by competition, it has been able to focus all its attention on providing a better service for customers.

Its recent move into Italy and Germany means there’s further scope for growth. That’s why, despite the share price rising so much already, I would still rate this firm a buy, both for its growth potential, and for its income. At a 2016 P/E ratio of 17.44, and a dividend yield of 3.24%, I think it’s fairly priced.

What about the competition?

I was a little irritated to find I could no longer watch Champions League football or several Premier League matches, because they had moved over to BT (LSE: BT.A). This telecoms giant is muscling into pay-TV in a big way. Yet this additional competition actually means that I now pay a higher TV subscription for less TV. So there you have it, this is a case of competition being not such a good thing.

Nonetheless, I understand BT’s motives, and I suspect it can make a success of it by providing a cut-price alternative to Sky. If you add pay-TV to BT’s booming services and broadband businesses, you can understand why this company’s share price has also been pushing higher. The acquisition of Everything Everywhere (EE) makes BT an even better proposition. That’s why I rate BT, just like Sky, as a buy for both growth and income. A P/E ratio of 15.94, with a dividend yield of 2.9%, makes the company very reasonable value.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »