It’s tough in the stock market at the moment. Yesterday saw the BT Group (LSE: BT-A) share price hit levels not seen since the 2009 financial crisis. Today, I want to explain why I think this could be a great buying opportunity for long-term investors.
Keep calm
I believe it’s times like this that lay the foundations for long-term investing success. In my view, the current sell-off is providing great buying opportunities for investors who can stay focused on the long term.
I’ve not sold any shares. And I won’t, whatever happens in the coming weeks. What I am doing is continuing to make regular share purchases with my monthly savings. My belief is that companies which were okay a month ago are still okay now. All that’s changed is that their share price has fallen due to a change in the market mood.
Admittedly, some companies could be hit badly by the coronavirus outbreak. But I think BT should be pretty safe. In my view, the current weakness could be a buying opportunity.
I like the BT share price
BT may not be the perfect company. It must continually spend money on network upgrades, and carries a rather large pension deficit. At the moment, the rollout of EE’s 5G mobile service and the expansion of the Openreach’s fibre broadband network are placing some pressure on the group’s finances.
However, I believe that beneath the surface is a profitable and sustainable business. Last year for example, BT generated an adjusted operating profit margin of 16.4%. The equivalent figure for rival Vodafone was just 11.4%.
I believe BT’s top management pairing of CEO Philip Jansen and chairman Jan du Plessis will be able to steady the group’s finances and return the telecoms group to growth.
Is now the time to buy?
The FTSE 100 slump has seen the BT share price fall to around 125p. The last time BT shares were this cheap was during the 2009 financial crisis.
In my opinion, such a low price tag provides an attractive margin of safety. With the shares trading on less than six times forecast earnings, the market is already pricing in a lot of bad news.
How safe is the BT dividend?
The other big question market relates to BT’s dividend. Based on last year’s payout of 15.4p per share, the stock currently offers a dividend yield of 11.5%. This payout is expected to be maintained for the year ending 31 March.
However, BT’s management has signalled a dividend cut may be needed to fund investment and manage the group’s debt levels. City analysts have cut their dividend forecast for 2020/21 to 10.8p per share.
This seems sensible to me. A cut will be a disappointment for long-term shareholders who paid a higher price for their shares. But if you’re buying at 125p, a dividend of 10.8p will still provide a yield of more than 8%.
I think the sell-off has left BT stock trading at a level which provides an attractive income with a low risk of further losses. I rate the shares as a buy and hope to add to my holding in the coming weeks.
